KUALA LUMPUR, Oct 3 — OCBC Global Market Research sees Malaysia meeting its fiscal deficit target of 4.3 per cent of gross domestic product (GDP) this year and expects the government to target an even narrower deficit of between 3.5 and 3.8 per cent in 2025.
The country’s fiscal deficit stood at RM55.2 billion as of the end of August, versus a deficit target of RM85.4 billion for this year.
“On a 12-month rolling-sum basis, we estimate that the fiscal deficit stood at 5.2 per cent of GDP as of August, compared to the full-year budget deficit target of 4.3 per cent of GDP,” it said in a research note today.
However, OCBC reckons that the fiscal deficit “run rate” at the half-year mark “suggested that an overshot of the annual 2024 fiscal deficit target could not be ruled out” as revenue growth contracted to 6.3 per cent year-on-year (y-o-y) in the first half of this year (1H24) after rising by 7.0 per cent in 2023, mainly from lower direct tax revenues.
“Petroleum, corporate and personal income taxes dropped significantly in 1H24 versus 2023, reflecting weaker commodity prices. Indirect tax revenue collections, however, held up, supported by export and import duties as well as sales and services tax collections,” it said.
On the expenditure front, Federal government expenditure growth slowed to 1.3 per cent y-o-y in 1H24 versus 3.2 per cent in 2023, driven by a drop of 24.4 per in net development expenditures while operating expenditures were up by 9.2 per cent in 1H24.
OCBC said emoluments, supply and service expenditures were the biggest drivers of operating expenditures in the first half of the year.
However, it noted that the fiscal trajectory changed in July and August where revenue collections were up by an average of 11.5 per cent y-o-y in the two months while expenditure growth slowed to 3.9 per cent, supported in part by the diesel subsidy rationalisation.
“Revenues and expenditures hit 64.4 per cent and 64 per cent of their respective annual budgets, and as a result, the fiscal run rate slowed, and the 2024 fiscal deficit target now looks achievable,” OCBC said.
— Bernama
