As Malaysia awaits the Prime Minister’s Budget 2016 announcement tomorrow, on Friday, some research firms have released pre-budget statements highlighting what can be expected in the 2016 national fiscal spending plans, amid a soft global economy.
Prime Minister Najib Razak said via Twitter, on Tuesday, that he would unveil initiatives to bolster the nation’s economic growth during his announcement.
“Several measures to ensure economic growth stays on a strong and stable path will be announced in Budget 2016,” Najib said.
The Malaysian Rating Corporation Berhad (MARC) stated in its pre-budget report on Tuesday that the government needs to address the issue of shrinking revenue as the entire impact of the 60 percent plunge in oil prices will be reflected in the government’s full-year financial position.
“While government revenue has been growing at a compound annual growth rate (CAGR) of 8.4 percent post-Global Financial Crisis (GFC), it will likely see a contraction in 2016 if crude oil and natural gas prices remain depressed. However, revenue from the Goods and Services Tax (GST), if it meets the government’s forecast, may help reduce the fall in the overall government revenue in 2016,” the ratings agency said, noting that the challenge for the government is in identifying expenditure cuts to avoid derailing fiscal consolidation efforts in place until 2020.
Commenting on the tepid origination activity in the bond market, the firm noted that it continues to believe that a more liquid secondary market is needed to reduce liquidity risk premiums, which would in turn encourage issuers of bonds rated A and below to enter the primary market.
“We are also of the view that the government should allocate funds to invest in investment-grade bonds that are rated A and below. A fund management unit can also be set up to manage the fund and be monitored by government institutions with a proven track record such as Khazanah Nasional Berhad,” it suggested.
In a ‘budget wish list’ released earlier, CIMB Group group chief executive officer Zafrul Aziz noted that the banking group hopes for continued commitment from the government to bring down the fiscal deficits through continuous review and restructuring of its operating expenditure whilst keeping tax rates unchanged for the next few years until the Malaysian economy is on a stronger footing.
“This would ensure the allocation for development expenditure for the next five years under 11th Malaysia Plan would not be compromised,” he said in an emailed statement, noting the importance for the continuity of plans to boost overall productivity by, among other things, building rail and road infrastructure and broadband networks, investing in skills development, fostering small and medium entreprises (SMEs), and encouraging sustainable development remains on track.”
According to Bank Negara Malaysia, Malaysia’s gross domestic product (GDP) grew 4.9 percent in the second quarter of 2015 from a year earlier. The nation’s GDP saw a 5.6 percent expansion in the first quarter of this year.
For the SMEs
Affin Hwang Capital Research commented on the possibility of Malaysia entering into free trade pacts such as the Trans-Pacific Partnership (TPP) in the future, for which the country would need to prepare itself. The firm believes that some of the focus points in the Budget 2016 will fall on the facilitation of internationalisation to promote Malaysian companies, especially the SMEs.
“For the medium to long term, we expect the Budget 2016 proposals to contain specific strategies that will focus more on productivity improvements, intellectual capital, skills, innovation and technology, in order to strengthen the country’s economic fundamentals,” the research firm said in a pre-budget report.
“This will also assist Malaysia in preparation of the possible entry into free trade pacts, with strong measures in promoting international trade (exports of domestic products and services) as well as enhancing further competitiveness of the country’s industries,” Affin Hwang noted.
In mid-September 2015, to facilitate access to financing, the government announced the MYR2 billion Working Capital Guarantee Scheme for SMEs, besides the MYR5 billion allocated earlier for the SMEs in the services sector.
“Apart from the already announced measures for SMEs, in the 2016 Budget, the Domestic Investment Strategic Fund, with already an additional funding of MYR1 billion, may be increased further, as well as other trade facilitation measures to help promote export competitiveness and expansion,” Affin Hwang added.
Affin Hwang also believed Government will provide further financial assistance to encourage SMEs to undertake export promotion to penetrate new markets under the possible bilateral pacts.
From the people
In its National Budget 2016 Sentiment Survey, online financial comparison platform iMoney has found that the main concerns among Malaysians are centered on the rising cost of living and its effect on other areas such as housing affordability.
Specifically, issues weighing on the average Malaysian’s mind are the cancellation of subsidy for fuel, weakening global economy, tumbling currency and political instability have further exacerbated the rising cost of living.
iMoney co-founder and group chief executive Lee Ching Wei noted that with the cost of living creeping northwards in Malaysia, impacting first property ownership, especially in urban cities.
“Perhaps the authorities should look at the bigger picture in helping Malaysians manage their money better and achieve their goal of buying their first home. Part of improving money management includes maintaining a healthy credit report, which can easily be done with good credit card record,” Lee said in a statement announcing the survey results.
iMoney’s survey was carried out between October 5 and 15, with the participation of more than 2,000 Malaysians.