KUALA LUMPUR, Sept 25 — Budget 2020, to be tabled on Oct 11, is expected to be an expansionary budget to provide a cushion for Malaysia’s economic growth in the event of a potential global recession in 2020, said AllianceDBS Research.
The government might, however, face difficulties in introducing expansionary measures while maintaining its efforts to reduce its fiscal deficit due to the current high government debt levels, it said in a research note today.
“Overall, we expect the government to remain on target to reduce the country’s fiscal deficit to 3.4 per cent of gross domestic product (GDP) this year from 3.7 per cent in 2018. However, we anticipate the fiscal deficit to remain sticky at around 3.2 per cent in 2020, higher than the 3.0 per cent targeted in the previous Budget,” it said.
Although the target would be missed due to the additional funding needed, the research house said expansionary measures were important to stimulate the economy to counter the slowing global growth environment.
In the first half of 2019, the Malaysian economy grew at a slower pace of 4.7 per cent versus 4.9 per cent in the corresponding period of 2018 due to a moderation in manufacturing sector growth amid a slowdown in public and private investments.
AllianceDBS Research said the Bantuan Sara Hidup (BSH) would likely be raised by RM360 to account for the expected targeted fuel subsidy of RM30 per month for a total of 12 months, which was expected to be implemented by the fourth quarter this year.
“This will likely incur an additional handout of RM1.08 billion in total,” it noted.
While the government had guided for no additional tax measures in the upcoming budget, the research firm said it expected the digital tax to be implemented this time, as was planned in the previous budget, to give an additional stream of revenue for the government.
“On the fiscal side, we expect the government to exercise prudence in spending and diversify its sources of revenue.
“In the coming years, we believe the government is likely to reduce oil-related revenue due to the volatility of Brent crude oil prices, while corporate income tax should remain one of the main contributors of government revenue,” it added.
AllianceDBS Research forecast GDP growth of 4.7 per cent and 4.5 per cent for 2019 and 2020, respectively, in view of the moderating global growth arising from headwinds such as the US-China trade war, emerging market currency volatility and geopolitical tensions.