CIMB - Malaysia's Budget 2014/2015 – Fiscal consolidation continues

The Malaysian Budget 2014/2015 was tabled in Parliament on Friday, 10 October 2014.

• The government revises upwards Malaysia’s GDP growth projection from 4.5-5.5% to 5.5-6.0% (2013: +4.7%). On the demand side, growth will be supported by consumer spending, private investment and improving global demand.  On the supply side, the services and manufacturing sectors will spearhead growth.
• The Economic Report 2014/2015 states inflation is expected to increase by a range of 4-5% in 2015. This takes into account implementation of the GST in 2015 and spillover effects of fuel subsidy rationalization done in October 2014.
• Our economists think that Bank Negara Malaysia is taking a wait-and-see stance in order to assess further incoming data before deciding whether to raise the OPR in November 2014. The extent of economic growth moderation would be a key factor in the OPR decision in November. If data points continue to soften, the odds would favor a prolonged hold into 2015.
• The government has committed to a narrower fiscal deficit target of 3.0% of GDP in 2015 (estimated -3.5% in 2014).
• The continued pace of fiscal consolidation especially implementation of the GST and sustained subsidy rationalization is credit positive for Malaysia’ sovereign ratings.
• The government has further stated its commitment to rationalize its borrowings, namely committing to its self-imposed 55% of GDP debt threshold.
• The fiscal deficit of 3.0% of GDP in 2015 would entail financing of around RM35.7 billion. Adding MGS and GII maturities of RM54.9 billion in 2015 would require an expected government bond offerings of around RM90 billion.