Government has room to boost spending with higher revenue

by **hlk** Fri 16 Dec 2011, 08:25

More pump-priming ahead?
PETALING
JAYA: The Malaysian Government will likely pump more money into the
economy in the coming months to induce a feel-good factor among the
people ahead of the next general election that is expected to be held
soon.
“With revenue coming in much higher than budgeted this year
as well as the backloading of the planned expenditure, the Government
has room to boost spending in the next few quarters,” Credit Suisse Group wrote in its report.
The
Government spent RM154bil in the first three quarters of the year. Its
revised Budget 2011 suggested that it planned to spend a further
RM76.8bil, or 9% of gross domestic product (GDP) in the fourth quarter,
which represented a 20% increase from the amount it spent in the
corresponding period last year, the international financial services
group highlighted.
In Budget 2012, the Government announced
one-off cash transfers to the poor, bonus payments and pay rises for
civil servants, as well as various tax exemptions. Most of these
measures were scheduled to happen in early 2012, which should then
provide a boost to sentiment and private consumption.
“The people
friendly' budget suggests that the general election, which needs to be
held by March 2013, may be near. We expect the Government to continue to
pump-prime the economy before the general election,” Credit Suisse
explained, adding that it believed the result of the general election
would determine the prospects for the much-needed structural reforms,
such as subsidy rationalisation and the introduction of goods and
services tax, going forward.
On its outlook for Malaysia's economy, Credit Suisse said it maintained its forecast of a 4.8% GDP growth in 2012.
It
said, nevertheless, there could be an upside chance to its GDP growth
forecast of 4.6% for Malaysia this year, given the still-robust private
consumption, partly due to high palm oil prices and government spending
that could boost sentiment.
“Malaysia remains highly exposed to a
sharp slowdown in the developed world; but, on a relative basis, we
think its domestic demand will hold up better than that of the other
small open economies in the region,” Credit Suisse said, adding that it
expected the country's monetary policy to remain defensive.
“With
risks surrounding the eurozone remaining high and inflation likely to
fall below 3% year-on-year (y-o-y) in the first quarter of next year, we
think Bank Negara will remain data-dependent and be ready to cut the policy rate if needed.
“Our
forecast suggests Bank Negara will keep the policy rate on hold until
end-2012. However, if the global growth outlook deteriorates in the
coming months, we think Bank Negara has both the scope and willingness
to cut the policy rate,” it noted.
Credit Suisse said it believed the ringgit would continue to trade in line with its regional peers in the near term.
“However,
we think Bank Negara may allow some ringgit outperformance if and when
the eurozone situation stabilises, given that Malaysia's current account
surplus remains strong, domestic demand resilient, and there are signs
of pick-up in US economic activity.
“Domestically, the election
result should also be an important determinant of capital flows. A poor
outcome for the ruling party could lead to heightened political
uncertainty and capital outflows,” it said.