Latest news with #RM339.7
New Straits Times
26-06-2025
- Business
- New Straits Times
HLIB: Fiscal deficit to narrow to 3.8pct in 20225
KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) expects the fiscal deficit to be narrowed to 3.8 per cent this year (2024: -4.1 per cent), as announced in Budget 2025. In its Economics & Strategy Outlook for the second half of 2025 (2H 2025), it noted that the government is expected to raise its total expenditure by 3.8 per cent year-on-year (y-o-y) to RM421.0 billion (2024: RM405.5 billion) amid higher emoluments and retirement charges due to the rise in civil servant salary and pension scheme, as well as rising debt service charges. Meanwhile, total revenue is expected to increase by 4.7 per cent y-o-y to RM339.7 billion (2024: RM324.6 billion) due to higher tax collection as a result of economic activity expansion. Following the United States President Donald Trump's tariff measures, the investment bank said the global economy is expected to be more modest, with negative implications for Malaysia. While the official forecast has yet to be revised, officials have hinted at lowering the gross domestic product (GDP) forecast from the current projection of 4.5-5.5 per cent, pending further clarity on trade negotiations. "While a more cautious outlook may lead to lower GDP and, in turn, lower-than-expected direct tax revenue, this is expected to be partially offset by subsidy savings from lower global oil prices and a stronger ringgit," it stated. Simultaneously, the government remains committed to implementing its fiscal reform measures in its bid to broaden the tax base. On June 9, the government announced that the implementation of the expanded Sales and Service Tax (SST) will take effect on July 1, 2025, with the Service Tax (six per cent or eight per cent) broadened to cover additional service categories, including rental or leasing, construction, financial services, private healthcare, private education and beauty services. To minimise the impact, the government has introduced several reliefs and facilitative measures. It aims to increase fiscal revenue by RM5 billion (0.24 per cent of GDP) with an annual target of RM10 billion per year. "Other measures, such as the gradual implementation of e-invoicing, are also expected to enhance government revenue over the longer term. "The government also aims to rationalise the RON95 petrol in 2H 2025, which will potentially provide government savings of RM8 billion as well as target smuggling activities," it said. On the inflation front, HLIB expects both headline and core inflation to remain modest in 2025, reflecting stable demand conditions and benign inflationary pressures. The outlook, while dependent on global developments and changes to domestic policy on subsidies, is expected to remain modest due to the targeted nature of policy reforms. According to Bank Negara Malaysia, the committee expects inflation to remain manageable. BNM has estimated a headline inflation rate of 2.0-3.5 per cent for 2025 was already factored in the impact of policy adjustments, including the potential subsidy rationalisation. Meanwhile, HLIB has forecast the ringgit to strengthen to an average 2025 of RM4.35-RM4.10 against the US dollar (2024: 4.57/4.47). Typically, a strong ringgit expectation would encourage foreign fund flows into Malaysia. "Not forgetting, our country has many other allures, making Malaysia an attractive emerging market rotational play," it said. Heading into 2H 2025, HLIB said the performance of the FBM KLCI will remain largely driven by external factors, particularly ongoing tensions in the Middle East and developments in the US. "Therefore, we are maintaining our 2025 KLCI target at 1,640. Overall, we expect 2H 2025 to be a period of contrasts, with the 3Q 2025 likely to be volatile, followed by a more stable 4Q. As such, we view any market pullback as a buying opportunity, especially for high-beta stocks," it said.
New Straits Times
16-06-2025
- Business
- New Straits Times
Oil prices, subsidy delay may derail Malaysia's revenue target
KUALA LUMPUR: Malaysia may fall short in achieving its revenue target this year due to soft oil prices and possible delays in the RON95 fuel subsidy rationalisation, some economists say. Oil prices have averaged below the government's budgeted level, although the benchmark Brent crude surged more than nine per cent to around US$75 a barrel last Friday, its highest in five months, after Israel struck Iran. Prior to the rally late last week, crude prices had averaged US$70 a barrel versus the government's 2025 Budget assumption of US$80. Economists said a prolonged soft oil prices raised the risk of petroleum income tax falling short of its target. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the correlation between Brent crude oil prices and Petroleum Income Tax (PITA) is about 87 per cent. He added that the strong correlation suggests any deviation from the price assumption would have a material impact on PITA collection. "There is a possibility that revenue collection may not be achieved, especially when the deviation from the price assumption becomes protracted," he told Business Times. CIMB Securities estimates that PITA may come in RM2.7 billion off the expected RM20.7 billion this year, based on Brent average of US$70 a barrel. Afzanizam noted that for the first four months, the government's revenue collection stood at RM97.1 billion. If annualised, this amounts to about RM291.2 billion, which may fall short of the government's full-year revenue target of RM339.7 billion. Widening gap As for RON95, Afzanizam said the gap between the estimated market price and the subsidised price has increased. His estimates show the market price for RON95 is about RM2.85 per litre, given the prevailing Brent crude price and exchange rate levels. "Given this, the difference between the market price and subsidised prices was at RM0.80 per litre. "Prior to this, the estimated market price for RON95 was about RM2.60 per litre when Brent Crude was around US$64 per barrel and the US dollar-ringgit at around RM4.22 to RM4.23, giving RM0.55 difference. "Hence, the gap with the subsidise prices has widened," he said. In the grand scheme of things, the prevailing conditions have become increasingly challenging, Afzanizam added. Echoing similar views, UOB Kay Hian Wealth Advisors Sdn Bhd head of investment research Mohd Sedek Jantan said the targeted RM339.7 billion revenue collection could be slightly lower due to softer oil prices and possible delays in the RON95 fuel subsidy rationalisation. He pointed out that while global oil prices have eased, commodity markets remain volatile as they are driven by finite resources, and prices could rise again. Nevertheless, he said the current environment offers a window for the government to proceed with RON95 subsidy rationalisation in the second half of 2025 (2H25). "Lower global oil prices may help cushion the initial inflationary impact, making this more in line with the government's broader fiscal consolidation plans under the Fiscal Responsibility Act 2023. "Rationalisation, supported by targeted subsidies, could bring the fiscal deficit down to 3.8 per cent of gross domestic product (GDP) in 2025, offsetting the drop in petroleum-related revenue, especially as Malaysia remains a net oil exporter," he said. However, he warned that a rebound in oil prices to the US$80-US$90 per barrel range could lead to renewed inflationary pressures. Collection target may still be met Conversely, Williams Business Consultancy Sdn Bhd director Dr Geoffrey Williams believes that the government revenue target is likely to be achieved due to strong economic fundamentals and the new Sales and Service Tax (SST) changes, which will add RM5 billion. He added that the Inland Revenue Board and the Customs Department are also improving collection process and e-payments and e-invoicing will help collection especially from larger companies. "I do not see any delay in RON95 subsidy rationalisation because the government is already committed to this. Anyway this will save money and help improve the fiscal position," he said. Williams noted that so far this year in 1Q25, total government revenue was RM72.1 billion, up three per cent from the same quarter in 2024. He added that the Q1 fiscal deficit was RM21.9 billion lower than the RM26.4 billion in 1Q24 due to better revenue collection and expenditure optimisation. "So the fiscal position is in good shape and will improve due to SST changes, subsidy rationalisation and more efficient spending cutting wastage, leakages and corruption," he said. Commenting further, Williams said oil prices have been always volatile. In the last five years, they had been as low as US$25 and as high as US$125 a barrel. "Even this month they have been below US$70 and above US$78. So they are inherently difficult to forecast. "The escalating conflict in the Middle East has forced prices up and this is likely to persist as long as uncertainties remain. So the downside risk has reduced for very unfortunate reasons," he added.
