KUALA LUMPUR: Malaysia will meet its budget deficit target for this year, with the shortfall expected to narrow further in 2011 due to a rebounding economy, according to a Reuters poll of 15 economists and World Bank forecast.
This year's budget deficit is expected to reach 5.4 percent of gross domestic product (GDP), slightly lower than the government's forecast of 5.6 percent and down from 7 percent in 2009, it showed.
The shortfall is expected at 4.5 percent next year, according to the Reuters report on Tuesday, Oct 12
Two government sources with direct knowledge of the matter told Reuters on Tuesday the government is on track to meet its deficit target in 2010 and is set for further budget consolidation in 2011.
Dividend payouts from Petronas, which account for up to 50 percent the country's budget revenue, has been confirmed at 30 billion ringgit while oil prices have been stable for most of the year which implies the subsidy bill may not be as big as before.
The government wants to cut the deficit to 2.5 percent of GDP by 2015, with fiscal consolidation seen coming more from rising tax revenues and a reasonably stable economic recovery rather than cuts in spending or drastic reductions in subsidies.
Below are some possible scenarios for next year's budget, due on Oct. 15:
NO BIG POLICY CHANGES
What many investors will be looking for in the budget are concrete steps to improve the investment environment, such as further liberalisation of the service sector or tax incentives, given the government's ambitious plans to attract $444 billion of private investment over the next 10 years. [ID:nSGE68K06Z]
While some investors expect such measures to be included, many analysts say they are likely to be medium- to long-term plans.
"Because there are so many big bold plans, it raises expectations. The next thing they need to do is to moderate market expectations," said DBS economist, Irvin Seah.
Likelihood: Unlikely the government will announce concrete steps.
Market reaction: Positive for both the currency and bond markets should the budget include specific steps.
NO BIG CONSOLIDATION
Prime Minister Najib Razak is unlikely to drastically reduce the amount of spending given the plans to increase investments that his government has announced in recent months.
The government scored its worst ever results in national and state polls in 2008 and faces potentially tricky state polls in Sarawak that could raise the prospect of the government losing power in national polls that must be held by 2013.
Subsidies, which account for 2-3 percent of GDP, are also unlikely to be cut by too much as the government tries to balance popularity with market-friendly reforms.
The government implemented small cuts in fuel and food subsidies in July which it said would save 750 million ringgit ($241.9 million) this year.
Likelihood: Very small that the government will take bold measures.
Market reaction: The currency and bond markets are likely to hold steady, supported on fund inflows to Asian bonds on interest rate differentials.
Budget deficit forecasts
2010 2011
Govt forecast 5.6 --
-----------------------------------------
Barclays 4.4 3.4
Nomura 4.9 4.5
DBS 5.0 4.3
Morgan Stanley 5.0 3.5
Citibank 5.1 4.6
OSK-DMG 5.2 4.4
UOB 5.3 4.5
Credit Suisse 5.3 4.5
World Bank 5.4 4.5
OCBC 5.5 5.1
Maybank 5.5 5.0
Standard Chartered 5.6 5.0
TA Securities 5.6 4.5
Affin Securities 5.6 5.2
CIMB 5.6 5.3
UBS 6.1 5.7
------------------------------------------
Median 5.4 4.5 ($1=3.100 Malaysian Ringgit)
This year's budget deficit is expected to reach 5.4 percent of gross domestic product (GDP), slightly lower than the government's forecast of 5.6 percent and down from 7 percent in 2009, it showed.
The shortfall is expected at 4.5 percent next year, according to the Reuters report on Tuesday, Oct 12
Two government sources with direct knowledge of the matter told Reuters on Tuesday the government is on track to meet its deficit target in 2010 and is set for further budget consolidation in 2011.
Dividend payouts from Petronas, which account for up to 50 percent the country's budget revenue, has been confirmed at 30 billion ringgit while oil prices have been stable for most of the year which implies the subsidy bill may not be as big as before.
The government wants to cut the deficit to 2.5 percent of GDP by 2015, with fiscal consolidation seen coming more from rising tax revenues and a reasonably stable economic recovery rather than cuts in spending or drastic reductions in subsidies.
Below are some possible scenarios for next year's budget, due on Oct. 15:
NO BIG POLICY CHANGES
What many investors will be looking for in the budget are concrete steps to improve the investment environment, such as further liberalisation of the service sector or tax incentives, given the government's ambitious plans to attract $444 billion of private investment over the next 10 years. [ID:nSGE68K06Z]
While some investors expect such measures to be included, many analysts say they are likely to be medium- to long-term plans.
"Because there are so many big bold plans, it raises expectations. The next thing they need to do is to moderate market expectations," said DBS economist, Irvin Seah.
Likelihood: Unlikely the government will announce concrete steps.
Market reaction: Positive for both the currency and bond markets should the budget include specific steps.
NO BIG CONSOLIDATION
Prime Minister Najib Razak is unlikely to drastically reduce the amount of spending given the plans to increase investments that his government has announced in recent months.
The government scored its worst ever results in national and state polls in 2008 and faces potentially tricky state polls in Sarawak that could raise the prospect of the government losing power in national polls that must be held by 2013.
Subsidies, which account for 2-3 percent of GDP, are also unlikely to be cut by too much as the government tries to balance popularity with market-friendly reforms.
The government implemented small cuts in fuel and food subsidies in July which it said would save 750 million ringgit ($241.9 million) this year.
Likelihood: Very small that the government will take bold measures.
Market reaction: The currency and bond markets are likely to hold steady, supported on fund inflows to Asian bonds on interest rate differentials.
Budget deficit forecasts
2010 2011
Govt forecast 5.6 --
-----------------------------------------
Barclays 4.4 3.4
Nomura 4.9 4.5
DBS 5.0 4.3
Morgan Stanley 5.0 3.5
Citibank 5.1 4.6
OSK-DMG 5.2 4.4
UOB 5.3 4.5
Credit Suisse 5.3 4.5
World Bank 5.4 4.5
OCBC 5.5 5.1
Maybank 5.5 5.0
Standard Chartered 5.6 5.0
TA Securities 5.6 4.5
Affin Securities 5.6 5.2
CIMB 5.6 5.3
UBS 6.1 5.7
------------------------------------------
Median 5.4 4.5 ($1=3.100 Malaysian Ringgit)
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