Fiscal deficit in January-May down by 39%, says Lim

The success is attributable to open competitive tenders and zero-based budgeting


MALAYSIA’S fiscal deficit has been reduced by 39% to RM21.4 billion in the first five months of the year, down from RM35 billion recorded in the same period in 2018, attributable to open competitive tenders and zero-based budgeting, according to Finance Minister Lim Guan Eng (picture).

Lim said the government has shrunk its current account deficit to RM1.1 billion in the period of January-May 2019, a reduction of 94% or RM16 billion from a large RM17.1 billion deficit in the same period last year.

“Fiscal discipline has been instituted through a combination of tighter controls over operating expenditure in the form of wider application of open competitive tender and the implementation of zero-based budgeting,“ he said in a statement yesterday.

“Nevertheless, the government is mindful of its subsidy bill and will continue to manage its expenses prudently,” he added.

Lim said the success of fiscal consolidation is among the reasons for Fitch Ratings Inc’s affirmation of Malaysia’s sovereign credit rating at A- with a stable outlook.

“Furthermore, the revenue and spending measures as outlined in Budget 2019 have enabled the government to improve its financial health,” Lim said.

The government plans to spend RM259.9 billion for operational purposes this year, as stated in Budget 2019.

The RM106.5 billion worth of operational spending in the January-May 2019 period represents a 41% of this year’s budget for operating expenditure.

Based on the current fiscal performance, Lim said the government is positive of achieving its fiscal deficit target of 3.4% of GDP, while keeping its 2019 current account balance in surplus.

“If there was no trade war between China and the US, two of Malaysia’s largest trade partners, the government would be more confident of achieving the targeted 3% of GDP fiscal deficit for 2020,” he said.

However, the government is confident that the country’s economy will expand sustainably in 2019 and 2020.

The World Bank projects Malaysia to grow 4.6% this year, as the country’s GDP growth remains robust despite the external challenges arising from the US-China trade war.

According to Bloomberg data, the Malaysian industrial production index grew 4% year-on-year (YoY) in May, beating market consensus of 3.5% YoY.

In the same month, exports grew 2.5% YoY, also beating market expectations. Approved foreign direct investment (FDI) across all sectors for the first quarter of 2019 (1Q19) rose 73.4% to RM29.3 billion versus RM16.9 billion a year ago.

Approved FDI growth in 1Q19 was driven by a 127% increase in approved manufacturing FDI to RM20.2 billion from RM8.9 billion a year ago.

Meanwhile, vehicle sales for the first five months of 2019 have improved by 13% compared to the same period a year ago.

Unemployment rate for the month of May has dropped to 3.3% from 3.4% the month before.

“The government is on track to fully restore its fiscal health by 2021. With support from the (citizens), 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.