Prime Minister unveiled Malaysia’s Budget 2017 on 21 Oct 2016, and which signals the federal government’s commitment of continued fiscal consolidation. The Budget indicates the federal government’ targeted fiscal deficit of 3.0%

Good morning

• The Prime Minister unveiled Malaysia’s Budget 2017 on 21 Oct 2016, and which signals the federal government’s commitment of continued fiscal consolidation. The Budget indicates the federal government’ targeted fiscal deficit of 3.0% of GDP for fiscal year 2017, in contrast to a deficit of 3.1% of GDP estimated for 2016 and 3.2% in 2015 [Exhibit 1].
• Based on the projected numbers, the 2017 fiscal deficit will require financing of around RM40.3 billion, which is higher than RM38.7 billion and RM37.2 billion for 2016 and 2015, respectively. Adding on upcoming 2017 maturity of MGS and GII of RM66.8 billion translates into a possible gross domestic government bond issuance of up to RM107.0 billion in 2017. However, we think the federal government will also be cognizant of the self-imposed government-borrowings limit of 55% of GDP – which could indicate a much lower gross government debt-raising in fiscal year 2017.
• In this case, the federal government may not refinance the entire 2017 MGS+GII maturity (of RM66.8 billion). We also suspect the federal government will focus towards lessening the recent upward trend in debt service charges, which is estimated at 12.5% of government revenue in 2016, against 11.1% in 2015 (there is a self-imposed government cap of 15%). We think, ultimately, the total amount of 2017 MGS and GII issuances could only range from RM100 billion upwards.