KUALA LUMPUR (Jan 20): The ringgit’s continued decline this afternoon seems to suggest that the market is still having some reservations towards the new fiscal deficit target announced by the government, according to the research arm of the United Overseas Bank Ltd (UOB).
In a report released this evening, UOB noted that the ringgit had declined to a six-year low of RM3.61 against the US dollar, just after the announcement of the revised budget 2015 by Prime Minister Datuk Seri Najib Razak at noon. This pushed the dollar to a fresh high against the ringgit since the 2008 and 2009 global financial crisis (high was 3.7390 in 2009).
The government had today revised its 2015 fiscal deficit target higher at 3.2%, compared to its earlier target of 3%. The government had also lowered the economic growth forecast to 4.5% to 5.5% for 2015 from 5% to 6% previously.
UOB said the drop of the ringgit is unlikely to abate, amid uncertainties in the domestic and global markets. “Lower forecasts for growth and current account surplus this year will also be negative for the ringgit,” it said.
The bank has retained its forecast for US dollar compared to ringgit at 3.65 at end of the first quarter of 2015 (1Q15) and at 3.68 at end of the second quarter of 2015 (2Q15).
On the performance of the local economy, UOB said it has lowered its growth forecast for Malaysia to 4.7% this year from 5.2% earlier (2014: estimated 5.9%), taking into consideration the cuts in fiscal spending and the impact of the soft oil and commodity prices on the economy.
It noted that despite savings of RM10.7 billion from the removal of fuel subsidies, the Malaysian government still faced a revenue shortfall of RM8.3 billion as the slump in oil prices had hit the government’s revenue collection against earlier forecast.
The oil price assumption has been lowered to US$55 per barrel in the revised Budget 2015 from US$100 per barrel used to draft the earlier Budget 2015 in October last year.
In his speech today, Najib said the government plans to cut operating expenditure by RM5.5 billion, representing 2.5% of total operating expenditure in the original budget.
This includes optimising outlays on supplies and services, especially overseas travel, events and functions and use of professional services; deferring the 2015 National Service programme; reviewing transfers and grants to statutory bodies, government-linked companies (GLCs) and government trust funds, particularly those with a steady revenue stream and high reserves, as well as rescheduling the purchase of non-critical assets, especially office equipment, software and vehicles.