Malaysia waltzing on tightrope while biting fiscal bullet: ANZ

KUALA LUMPUR – Malaysia’s upcoming Budget, to be announced on October 10, will be significant given that it is the final one under the 10th Malaysia Plan, says ANZ Bank. “Amid looming normalisation of US fed fund rates, Malaysia has to continue to push ahead with fiscal reforms, especially given international capital’s aversion to its multi-year structural fiscal deficit,” it says. “The fickleness of carry trade flow amid a stronger dollar environment does not bode well for Malaysia, where the proportion of Government bonds under foreign ownership has climbed to more than 45%.”

ANZ says another round of fuel subsidy reform, in addition to the GST should be welcomed by rating agencies. “The Government will have to strike a delicate balance of tough trade-offs between fiscal prudence and maintaining current growth momentum, while providing fiscal transfers to help cushion low-income households against the inflationary impact. Supply side economic reforms are also necessary for Malaysia to leverage on the opportunities arising from the Asean Economic Community.”
ANZ says private investment in Malaysia needs to take the driver’s seat to sustain economic momentum going forwards. “There could be a greater reduction in corporate taxes and/or the effective date could be brought forward a year earlier to 2015,” the bank says. www.live.anz.com (ATI).