Budget 2020 Outlook: Moderation In Fiscal Consolidation

Ahead of the tabling of Budget 2020 on Friday (Oct 11), the Standard Chartered Global Research team is expecting a moderation in the pace of fiscal consolidation. This would be unsurprising, given that the government has hinted at a more gradual fiscal consolidation path.

The 2019 budget targeted narrowing the 2020 fiscal deficit to 3.0 percent of GDP from 3.4 percent in 2019. Standard Chartered Global Research projects the 2020 deficit at 3.2 percent. Nevertheless, it does not expect this to raise rating concerns given the challenging economic outlook, as long as the medium-term fiscal consolidation target is adhered to.

A significant fiscal stimulus package is unlikely given still-resilient growth in Malaysia
and the fall in non-oil related revenue, which can be largely attributed to the goods
and services to sales and services tax (GST-SST) shortfall. Furthermore, the government has said that there are no plans for new tax measures in the 2020 budget.

It expects the government to focus on rationalising expenditure, such as tax incentives, and tightening the administration of revenue collection. Excluding the one-off GST and income tax refunds of 3.5 percent of GDP, operating expenditure declined in first half of 2019, reflecting the government’s commitment to expenditure rationalisation thus far. Development expenditure also remained stable at 3.2 percent of GDP in H1-2019.

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