Nomura: Malaysia on track to reduce fiscal deficit to 2.8% this year

KUALA LUMPUR: The government's target of narrowing fiscal deficit to 2.8% of the gross domestic product (GDP) this year is within reach, on the back of the recovery seen in crude oil prices, according to Nomura Research.
"We expect them (the government) to meet their 2.8% target helped by the fact the government's budget assumption is very conservative. They are only expecting US$52 per barrel whereas we are forecasting US$65 and it is currently at US$68," said Nomura's Southeast Asia chief economist Brian Tan.
He said the current pace of recovery of crude oil prices has exceeded the government's expectations. This will then result in higher oil revenue and coupled with reduced fuel subsidies, the fiscal deficit target is most likely achievable.
With the polls around the corner, higher government spending is anticipated in the first half of the year, but the trend is unlikely to continue after the 14th General Elections.
Nomura has forecasted the GDP to remain solid at 5.5% this year against 5.8% in 2017, anchored by solid domestic demand as a result of stronger exports.
On the monetary policy, Nomura is anticipating a 25-basis-point hike in the Overnight Policy Rate (OPR) this month due to financial imbalances.