Malaysia's deficit seen to miss 4% target

Hopes pinned on Budget 2014.

According to DBS, Budget 2014 will be announced by Prime Minister Najib on 25th October. This budget will be keenly watched as it could mark a major step towards fiscal consolidation. 

Fiscal policy has been a key flash point lately. Year-to-date, revenuecollection has not kept pace with expenditure and the deficit has widened.

A narrow tax base, rapid increase in developmental expenditure from some of the mega projects in the Economic Transformation Programme, a costly subsidy programme and generous handouts during the election period
have strained official coffers. The deficit for 2013 could rise to 4.3% of GDP, missing the target of 4.0%.

Here's more from DBS:

Fiscal rationalisation needed
The economy has been running large fiscal deficit for years and as a result, government debt has escalated to about MYR 502bn (53.3% of nominal GDP) in 2012.

While 96.8% of the government debts are domestic, it is nevertheless still a concern for investors due to persistently large fiscal deficits. Fitch has downgraded Malaysia’s credit rating outlook to negative due to the lack offiscal reform.

One of the key pressure point came from subsidy expenditures which have escalated in recent years. A large chunk of it is due to the fuel subsidy component, which will likely reach MYR 24.8bn this year and account for about 56% of the total subsidy bills.