Malaysia likely to meet deficit target

KUALA LUMPUR: The Malaysian government should likely
meet its
deficit target of 4.7 per cent of gross domestic product (GDP) this
year and would be able to maintain this level for 2013 despite the
challenges both externally and domestically.

The government
would also likely introduce a series of reforms in 2013 after the 13th
general elections, widely expected between November 2012 and February
2013, said Alliance Research in its comments about Standard and Poor's
(SandP) warning of downgrade for Malaysia.

It said the reforms
would include the subsidy rationalisation plan, which would streamline
the prices of petroleum products in line with global crude oil prices,
as suggested by Performance Management and Delivery Unit a couple of
years ago.

Alliance Research also expected the goods and
service tax (GST) may come in by end-2014, though the government has
been stressing it would not be implemented for now.

It said
though this had been a concern for quite some time, it did not think
the ratio of external debt to GDP ratio would exceed the self-imposed
limit of 55 per cent of GDP this year.

Latest data showed that
the ratio of federal government debt to GDP reached 51.8 per cent at
end-2011 and estimated to remain steady at around 53 per cent for the
current year.

However, actual data may likely come lower than
expected, given the improved revenue amid stronger-than-expected GDP
and better revenue collection as well as improved subsidy levels
following easing commodity prices, it said.

In a report
yesterday, SandP has warned a potential sovereign credit rating cut for
Malaysia, if the government did not undertake reforms to cut spending
to reduce its fiscal deficits.

Strategic reforms also included the introduction of a GST and subsidy cuts, according to the agency.

Last
month, Fitch Ratings said in a report that Malaysia had yet to present
a convincing plan to tackle the twin fiscal threats of its federal
budget deficit and federal debt.

Fitch also said that data
clearly showed public sector-linked activity had been a key driver of
GDP growth for the last four quarters alongside robust private sector
activity. -- BERNAMA