BMI, a unit of Fitch Solutions, has maintained its projection for the Federal Government’s budget deficit to be lower than 5.0 per cent of Gross Domestic Product (GDP) in 2023, at 4.3 per cent in 2024, and further decreasing to 3.9 per cent in 2025, as reported by Bernama.
The research firm noted that, thus far in 2024, the Unity Government has made significant progress in controlling spending. BMI is confident that the government will continue to strive towards its medium-term goal of reducing the budget deficit to 3.5 per cent of GDP by 2025.
“In the meantime, we continue to project that expenditure will remain in line with government estimates,” stated BMI in a note today. Total expenditure has reached 56.0 per cent of the 2024 target during the first seven months, in line with the five-year average of 55.0 per cent.
“The Unity Government completely abolished diesel subsidies on 10 June, a measure expected to save up to RM4.0 billion annually.
“We consider this a necessity as public sector wages will increase by more than RM10.0 billion, marking the first revision in over a decade,” the firm added. BMI expects further subsidy rationalisation to meet fiscal targets, maintaining its expenditure projection to slightly decrease to 19.4 per cent of GDP in 2024, down from 20.3 per cent in 2023.
Additionally, BMI emphasised that under the medium-term fiscal framework for 2024-2026, which targets an average deficit of 3.5 per cent of GDP, the Fiscal Responsibility Act, approved on 11 October 2023, mandates the government to reduce the deficit below 3.0 per cent within three to five years.
“If this occurs, we anticipate that more significant measures will be implemented in the upcoming 2025 Budget to achieve these medium-term targets,” it noted.
Regarding the Overnight Policy Rate (OPR), BMI projects that Bank Negara Malaysia (BNM) will maintain the rate at 3.00 per cent for the remainder of this year and throughout 2025, with potential reductions in 2026.
“Good inflation and strong growth prospects indicate that BNM is likely to sustain the OPR at the current level for an extended period,” the firm remarked.
