Friday 29 Mar 2024
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KUALA LUMPUR (Sept 12): UOB Malaysia expects the Government to set aside between RM5 billion and RM8 billion as contingency funds in the Budget for next year to cushion the Malaysian economy from any adverse impact of US-China trade disputes and more pronounced global slowdown.

“We think the priority of contingency measures for 2020 would be on high impact and high multiplier projects,” said UOB Global Economics & Markets Research senior economist Julia Goh.

“Should the contingency funds be fully utilised, Malaysia’s fiscal deficit may widen to around 3.5% - 3.7% of GDP next year, higher than our baseline forecast of 3.2% of GDP.

“We do not expect this to necessarily pressure Malaysia’s sovereign ratings in view that these are counter cyclical measures aimed at stabilising the domestic economy amid a sharp deterioration in the global landscape,” Goh said in a preview of Budget 2020.

Budget 2020 is scheduled to be tabled on Oct 11.

Goh noted that Finance Minister Lim Guan Eng had said in early August that the upcoming Budget would have contingency measures to insulate Malaysia from any adverse impact from the US-China trade dispute.

The previous two stimulus packages that were announced during the global financial crisis in Nov 2008 and March 2009 included a direct spending package, other measures and incentives that covered Government guarantee funds, private finance initiatives, and off-Budget projects.

Goh said the government is likely to take a pragmatic and responsible approach in the coming budget.

“The fiscal stance is likely to be expansionary while keeping to the task of narrowing the fiscal deficit.

“We expect a fiscal deficit of 3.2% of GDP for 2020 (vs -3.4% in 2019), which is wider than the initial deficit target of 3% that was highlighted in Budget 2019.

The slowdown in GDP growth mainly underpinned by the cautious tone about the momentum of private investment and export sector going into 2020 against a backdrop of prevailing weak business sentiment, a persistent downtrend in the global tech cycle, and softening global demand, she said.

Goh said given lingering risks on the global front and signs that the domestic economy is moderating, she expects the Government to loosen its purse strings in targeted areas such as trade and industry, communications, healthcare, education and training as well as infrastructure projects to spur growth.

“We project development expenditure allocation to be raised by 0.5% to RM55 billion for 2020 (from a budgeted RM54.7 billion for 2019) to accommodate more growth stimulus-driven projects,” she said.

Previously, the Government had slashed the development expenditure to RM220 billion from RM260 billion for the period between 2016 and 2020. Between 2016 and first half of 2019, (1H19), the Government had spent RM166.4 billion in development expenditure, which is equivalent to 75.6% of the RM220 billion target.

Meanwhile, Goh said the operating expenditure is expected to increase by 3% to RM229.4 billion in 2020, largely due to fixed expenses such as emoluments, pension and gratuities, as well as debt service charges.

On the revenue front, UOB projects Government revenue to rise by 3% to RM 231.5 billion in 2020, even as no new taxes will be introduced.

On potential measures in the upcoming Budget 2020, UOB thinks that the low income group (B40) and small- and medium-sized enterprises will be in focus.

“For corporates as well as medium- and high-income earners, the good news is no new taxes will be introduced.

“This compares to the sugar tax, departure levy, digital tax, real property gain tax and Special Voluntary Disclosure Programme announced in Budget 2019,” she said.

Lim has hinted that the Government is unlikely to cut the corporate tax rate next year due to financial constraints.

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