The government should take its time in the pursuit to achieve a balanced budget by 2020, said Maybank Investment Bank Bhd Group chief economist Suhaimi Ilias.
He said current efforts to reduce the budget deficit were already very good, and if the government managed to achieve the target, it should be due to great economic and revenue growth.
"Achieving a balanced budget in 2020 requires the government to deliver a big deduction in the 2019 and 2020 budget deficit, and that could potentially affect the economy.
"Will the government reduce its spending, stop the 1Malaysia People's Aid (BR1M) programme, downsize the civil service, raise income tax or GST?
“These are things which need to be considered when we talk about a balanced budget," he said at Maybank’s Global Markets Economic Outlook 2018 today.
During the recent 2018 Budget presentation, the government reaffirmed its commitment to further consolidate its fiscal deficit towards achieving a near-balanced budget in 2020.
The government aims to further reduce fiscal deficit to 2.8 percent (RM39.8 billion) of GDP in 2018 from the 3.0 percent (RM39.9 billion) in 2017.
On global market economic outlook, Suhaimi said the bank was of the view that the current global growth momentum would remain sustainable until next year, led by the synchronised expansion in G3 (the United States, Eurozone and Japan) economies.
"The US Federal Reserve's slow interest rate hikes versus preceding sharp interest rate cuts is good for duration of the longer US growth cycle.
"Eurozone is showing signs of accelerating growth, while reflation is seen in Japan," he said, adding that when the G3 economy does well, it would also benefit the regional economy, including export-driven countries such as Malaysia.
He said Malaysia should be able to sustain its GDP growth next year amid expectations of a favourable global economic performance.
Maybank has projected a real GDP growth of 5.5 percent for 2017 and 5.1 percent for 2018, and an inflation rate of between four percent for this year and between 2.5 percent and 3.0 percent for 2018.
On key benchmark interest rates, it said Bank Negara Malaysia would likely revise its Overnight Policy Rate to 3.25 percent in the second half of 2018 from the current 3.0 percent.
On the ringgit, the bank said it could test the psychological level of 4.0 against the US dollar after the 14th Malaysian general election, which it predicted would take place between February and April next year.
- Bernama
