KUALA LUMPUR: The 2020 Budget is expansionary so as to avoid an economic slowdown.
Franklin Templeton GSC Asset Management Sdn Bhd chief executive officer Hanifah Hashim said the budget also reflected the government’s continued commitment to reduce fiscal deficit while supporting economic growth.
“This fiscal discipline is long-term positive to the fundamental health of the country, providing for flexibility in response to any future economic challenges,” she said in a statement.
Despite current external headwinds, the government forecast of 4.8 per cent growth in the gross domestic product (GDP) is higher than the 2019 budget estimation of 4.7 per cent economic expansion.
The fiscal deficit is projected to be 3.2 per cent of the GDP for 2020. It is within market expectations and a path to consolidation.
Hanifah said the budget deficit target for 2020 was higher than the previously announced 3.0 per cent, citing that the market and relevant rating agencies had priced-in the new higher target rate of 3.2 per cent.
“The revised rate remains on a declining trend from the 3.4 per cent deficit expected in 2019. Given the more volatile and unpredictable nature of global trade trends, we understand the government needs some headroom for an expansionary fiscal policy and do not expect ratings to be impacted,” she added.
Meanwhile, she said the local bond market had largely priced in the wider fiscal target deficit of 3.2 per cent as investors were currently pricing in another 25 basis points rate cut next month or latest, by first-quarter of 2020.
This was due to the perceived sluggish growth scene arising from external headwinds.
However, she qualified the higher inflation rate target of 2.0 per cent and higher GDP growth target of 4.8 per cent, had lowered the probability of another rate cut in the short term.
Hanifah went onto highlight a cautious outlook on toll road sector, due to the lack of details and uncertainties concerning the takeover plans for highways controlled by Gamuda Bhd and owned by PLUS Malaysia Bhd.
“While the budget touched on the funding of the toll road takeover via government guaranteed bond issuance, there is still insufficient information to properly assess the risks involved,” she said.
FSMOne research team said the Pakatan Harapan government’s tabling of second national budget was receptive to many market participants.
“We noticed the government’s effort in maintaining a balance between fiscal spending to spur economic growth and preparing the groundwork for a high-value economy,” it said.
It added that the government’s debt of RM1.17 trillion was likely to take some time to be reduced to a healthy level.
FSMOne noted the government is diversifying the country’s revenue by introducing digital tax to reduce the country’s reliance on oil.
“While the fiscal deficit is more than the originally forecasted -3.0 per cent, we think this is unlikely to trigger any rating downgrade by the big three credit agencies namely Standard & Poor’s, Moody’s and Fitch Group,” it added.