KUALA LUMPUR: The government’s fiscal consolidation efforts to attain the new 3.2% budget deficit target in 2015 “will take a lot of political will, hard work and perhaps even some good luck”, said The Hongkong and Shanghai Banking Corp Ltd (HSBC).

The international bank said it would be a delicate balance as it would require an efficient implementation of the measures introduced in the revised Budget 2015 amid the weakening ringgit and tumbling crude oil prices.

Among the revenue-boosting measures are greater corporate participation in the goods and services tax implementation, and increased dividends from government-linked companies and government-linked investment companies.

Measures also include a cut in operating expenditure amounting to RM5.5 billion and the continuity of Petroliam Nasional Bhd’s (Petronas) dividend contribution of about RM27 trillion to RM30 trillion.

“Slippage on any of these fronts, and the government will likely be missing its target by at least 0.2 to 0.3 percentage point (ppt), meaning almost no improvement in fiscal balances compared with 2014,” HSBC Asean economist Lim Su Sian said in a report released yesterday.

Assuming the ringgit trades at 3.60 against the US dollar and oil prices are at US$55 (RM198) per barrel on average, Lim estimated that oil-related revenues could drop RM14.2 billion from our current base case of RM258 trillion.

This, however, excludes Petronas’ dividend contribution.

Lim said “luck” to an extent plays a role as her estimates suggest that for every US$10 per barrel increase in the average price of oil for the year, the budget deficit will narrow by an additional 0.3ppt. She said likewise a strong US dollar is also favourable, assuming that every 20 sen depreciation in the ringgit versus the greenback narrows the budget deficit by just 0.1ppt, albeit a smaller impact.

Of the measures introduced, Lim pointed out that the RM5.5 billion cut in operating expenditure could prove the “most challenging”.

This article first appeared in The Edge Financial Daily, on January 23, 2015.