KUALA LUMPUR (Oct 24): AllianceDBS IB in an economic focus commentary on Budget 2017 tabled last Friday said that as expected, the fiscal allocation in Budget 2017 appears tight, leaving little room for new growth-boosting policies, as the market would have expected.

In a note last Friday, AllianceDBS IB said that for 2017, the government guided that the Malaysian economy is expected to expand by 4.0%-5.0% in real GDP terms, relatively steady compared to projected growth of 4.0%-4.5% in 2016.

It said domestic demand will remain the key driver of growth.

AllianceDBS said the government’s revenue would largely come from corporate tax (31.5% of revenue), followed by Goods and Services Tax (18.2% of revenue).

It said the modest expansion in operating expenditure (opex) is on core spending such as emoluments (36.0% of opex), debt service charges (13.4% of opex), supplies and services (14.9% of opex); while subsidies are expected to be lower, following the various administered price changes taken place since 2015.

“While development expenditure allocation of RM46.0 billion is higher (2016: RM45.0 billion), it remains below the RM52.0 billion average allocation under the 11th Malaysia Plan.

“We maintain 2017 GDP forecast at 4.4% (2016e: 4.2%), and inflation higher at 3.0% (2016e: 2.4%). We believe that, Bank Negara may adjust the Overnight Policy Rate by another 25 basis points as soon as 1Q17,” it said.