Tuesday, January 20, 2015

2015 Budget Revisions

It’s neither as good as I hoped, nor as bad as I expected (you can read the speech here).

The government expects revenue to drop by RM13.8b in oil & gas related revenue, with some uptick from other sources. There will be cuts in operating expenditure along with the savings from the abolishment of petrol and diesel subsidies. Development expenditure will be held constant, based on the original budget estimates.

I won’t go into any detail on the specific measures (though the flood assistance programs are worthy of note), but the overall picture results in an increase in the forecast deficit to 3.2% of GDP, a little above the 3.0% original target.

That’s good – it provides a little more support for the economy; it’s also bad, because it’s not nearly enough to cover the potential shortfall in national income (the increase is just RM2b). Inasmuch that most of the adjustment costs will be borne by the oil & gas sector, that’s – maybe – okay. With sincere apologies to those affected, employment in the O&G is a fairly minor portion of the labour force, so the welfare impact won’t be very large. More crucial will be cuts in O&G capital investment, which takes off a fairly hefty portion of private investment growth off the table.

All in all, a reduction in growth is a probable outcome, which would have been more fully mitigated if the government hadn’t cut opex.

I’m not yet privy to the detailed estimates, which would paint a more complete picture. Some of the numbers don’t quite add up. I don't want to speculate yet without the detailed information, but I'll post on it if and when I get them.


  1. What do u think about tony pua's analysis


    1. @anon

      There's a lot of political rhetoric, but not much analysis

  2. All in all, a reduction in growth is a probable outcome, which would have been more fully mitigated if the government hadn’t cut opex

    Im lost, could u further explain this?

    1. @Group 8

      Reducing government spending is negative for economic growth

  3. http://www.themalaysianinsider.com/malaysia/article/red-lights-blinking-on-malaysias-economic-dashboard

    Seems malaysian economy is gonna go bad soon..

    Do u think this is a sound analysis

  4. Are you being overly optimistic, Hisham?

    You may have read the report "Red lights are blinking on Malaysia's economic dashboard" in The Star Business News online.

    The report referred to four "red lights" - an economy "running on debt on 3 fronts: government, households and the capital account" and the possibility that the current account will go into deficit.

    As noted in the report, foreign investors have US$45 billion in Malaysian bonds and have lent a total of US$208 billion to the country.

    Also, the report notes that "credit markets rank Malaysia as the riskiest in South-East Asia".

    You would have noted the comments by Sameer Goel (head of Asian macro strategy, Deutsche Bank) and Mirza Baig (head of Asian rates and currency strategy at BNP Paribas in Singapore).

    Both of them have expressed some pessimism about the Malaysian economy, as mentioned in the report.

    The report also noted that foreign investors own 44% of Malaysian bonds. What would happen if "they run for the exit"?

    It was also highlighted that another area of risk will be " the US$112 billion of short-term borrowings barely covered by US$116 billion of foreign exchange reserves as at end-2014."

    It doesn't seem to be very optimistic to me.

    1. @anon 3.20

      Not, I'm not being overly optimistic. Just a sampling of the spin this article is putting on the situation:

      1. BNM recategorised the external debt statistics last year. One of the changes is that foreign currency deposits in the domestic banking system are now considered "external" liabilities i.e. external debt. But such accounts have no implications for international reserves, since they are already foreign currency denominated.

      2. Malaysia is in the top 20 trading nations in the world, with exports and imports individually exceeding 80% of GDP. In terms of ratio to GDP, that puts Malaysia in the top 5 in the world. One implication of this is that a large portion of short term external "debt" is actually extremely safe collateral-backed trade credit, again with not much implication on international reserves. The fellow might want to explore Singapore's external debt numbers (Singapore has similarly high trade ratios). It might be an education.

      3. Riskiest in South-East Asia? I read the original Reuters report on this. The writer confused an increase in the price of CDS with the price itself (and the chart accompanying the article proved it). Indonesia is and was the riskiest credit in SEA.

      As I said, a hatchet job. God save me from journos who don't bother finding out what they're writing about.

  5. How fast things can change in the times in which we live...Flashback to August....