UOB: Budget 2019 to focus on fiscal, debt consolidation

The researcher expects the govt to trim allocations for both operating, development expenditures


The upcoming Budget 2019 is expected to stay the course of fiscal and debt consolidation as the new government looks to pull itself back from the fiscal brink.

UOB Global Economics and Markets Research senior economist Julia Goh (picture) expects reductions in Pakatan Harapan’s maiden budget to meet the fiscal target of RM40.3 billion, or 2.8%, of GDP.

“Given the challenges of managing fiscal and growth risks, we expect the government to trim allocations for both operating and development expenditures amid lower revenue collections.

“Our base case fiscal balance projection is 3% of GDP in 2019 (from an estimate of 2.8%),” Goh said in a preview note of Budget 2019, adding that the higher deficit target is premised on real GDP growth of 4.8% for the year.

However, Goh said the size of the budget deficit will depend on the amount of revenue collected from the Sales and Services Tax, size of refunds for the Goods and Services Tax (GST) or input tax credits (ITCs), income tax, real property gains tax, asset monetisation, oil revenues and degree of cuts in the operating expenditure.

Fiscal concerns raised that have a bearing on businesses and individuals include outstanding income tax refunds amounting to RM16 billion owed in 1.65 million cases involving companies, individuals, societies and foundations.

This follows RM19.4 billion of outstanding GST refunds owed in ITCs to companies over a period of six years.

The government has also reported that there are insufficient funds in the consolidated revenue account to fund operating expenditures.

The revenue account saw an RM11.4 billion declining from RM11.86 billion as at end-December 2017 to RM450 million at end-April 2018.

Goh said the government will likely address Malaysia’s high overall public debt by looking at options to pare down debt levels, including contingent liabilities, over time.

This would include monetising some of its non-core assets such as sales of shares, land and leasing of idle government assets and buildings, debt restructuring and recovery of funds from 1Malaysia Development Bhd (1MDB).

It was reported that the 1MDB asset recovery team is looking to recover RM974 million that was given out between 2011 and 2014.

Goh said a sensitivity analysis based on local shares owned by sovereign wealth fund Khazanah Nasional Bhd suggests that RM4 billion can be raised from paring down their stakes by 5%.

“To meet near-term spending needs, the government is looking into an optimal mix of financing options to keep cost of financing low, and ensuring the timing and size of fundraising do not disrupt financial markets and overall confidence,” she said