PETALING JAYA: The Pakatan Harapan government has reduced the country’s overspending or fiscal deficit by nearly RM14bil in the first five months of 2019 in comparison to the same period last year.
Given the current fiscal performance, Finance Minister Lim Guan Eng has reaffirmed his confidence that the government would likely achieve its fiscal deficit target of 3.4% of gross domestic product (GDP) in 2019.
He also said in a statement yesterday that the government was “on track to fully restore its fiscal health by 2021”.
In the January-May 2019 period, Lim said that the government had cut its fiscal deficit by 39% year-on-year to RM21.4bil, on the back of prudent expenses management, open competitive tenders and zero-based budgeting.
In comparison, the fiscal deficit stood at RM35bil for the January-May 2018 period.
“The government is mindful of its subsidy bill, and will continue to manage its expenses prudently.
“Additionally, the government has shrunk its current account deficit to RM1.1bil in January-May 2019, a reduction of 94% or RM16bil, from a large RM17.1bil deficit in the same period last year,” stated Lim.
He added that federal government revenue had increased while operating expenditure reduced in the five-month period.
Speaking with StarBiz, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said that the government has been very careful in its spending, which has led to lower deficit level.
However, he cautioned that the government should not be too fixated on achieving the targeted fiscal deficit for 2019 and 2020, especially if the global and domestic economic outlook worsens.
Mohd Afzanizam said that any fiscal consolidation measure should relate to the country’s growth prospect, pointing out that “the government should reduce the deficits when times are good”.
“The government need to re-look its fiscal consolidation strategy whether the benefits will continue to outweigh the cost should it maintain the course.
“I believe some form of flexibility needs to be accorded and the rating agencies can be sensible about their rating decision.
“Thus far, we have seen the credit default swap spread is low for quite sometime, suggesting fixed income investors are comfortable with Malaysian govt credit profile. Perhaps, it is not too bad to tweak the deficits target somewhat wider than before,” he said.
For the January-May 2019 period, the government’s net development expenditure increased by 13% y-o-y or RM2.4bil, according to Lim.
For context, the Pakatan government spent a net development expenditure of RM20.3bil in the first five months of 2019, as compared to RM17.9bil for the January-May 2018 period.
The RM20.3bil net spending on development projects in the first five months of this year represents about 37.6% of the total budgeted 2019 allocation.
Meanwhile, operating expenditure in the first five months stood at RM106.5bil or 41% of the total allocation for operational purposes under Budget 2019.
“The government is confident that the economy will expand sustainably this year and in 2020.
“The World Bank projects Malaysia to grow 4.6% this year, and this is particularly so as Malaysia’s GDP growth remains robust despite the external challenges arising from the US-China trade war.
“With support from the rakyat, Malaysia has good prospects to overcome the financial legacy issues of high debt load and failed governance left behind by the previous administration,” Lim said.
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