KUALA LUMPUR: BMI, a Fitch Solutions company, has maintained its forecast for the country’s federal government budget deficit to narrow from 5% of gross domestic product (GDP) in 2023 to 4.3% in 2024, and further to 3.9% in 2025.
The research firm noted that thus far in 2024, the unity government has made significant strides in controlling spending.
It expressed confidence that the government would continue working towards its medium-term goal of reducing the budget deficit to 3.5% of GDP by 2025.
“Meanwhile, we continue to expect that expenditure will remain on track with the government’s projections,” BMI said in a note yesterday.
It further noted that total spending had reached 56% of the 2024 target in the first seven months. This aligned with the five-year average of 55%.
“Since our April update, the unity government removed blanket diesel subsidies on June 10, a move expected to save up to RM4bil annually. We see this as necessary, given that civil servants’ salaries will increase by more than RM10bil, marking the first revision in over a decade,” the firm explained.
BMI expects further subsidy rationalisation to meet fiscal targets, maintaining its forecast for expenditure to decline marginally to 19.4% of GDP in 2024, down from 20.3% in 2023.
In addition, BMI highlighted that under the medium-term fiscal framework for 2024-2026, which targets an average deficit of 3.5% of GDP, the Fiscal Responsibility Act, passed on Oct 11, 2023, mandates the government to reduce the deficit to below 3% within three to five years.
“If so, we expect more substantial measures to be implemented in Budget 2025 to achieve these targets,” it said. — Bernama
