KUALA LUMPUR: The RM15 billion allocation requested for a supplementary budget will not affect the government's targeted four per cent fiscal deficit, says CIMB Investment Bank (CIMB IB).
The government is seeking Parliament's approval for a supplementary budget of RM15 billion for this year, 59 per cent of which will be for fuel subsidies and 25.2 per cent for emoluments.
"Our channel checks indicate that this will not affect the fiscal deficit target as the budget office had already taken into account the additional revenue collected to cover the extra spending.
"For Budget 2014, we expect the government to target a fiscal deficit of 3.5 per cent of gross domestic product (GDP), so as to put the country's budget deficit and debt on a firm downward trajectory," said CIMB IB chief economist Lee Heng Guie recently.
According to Deputy Finance Minister Datuk Ahmad Maslan, who earlier this week tabled a supplementary budget for 2013 in Parliament, RM8.9 billion of the increased allocation is for fuel subsidies, RM3.8 billion for emoluments and RM1.5 billion for maintenance, utilities, operational costs and "Operation Daulat" during terrorist intrusions in Sabah.
"We are confident that the supplementary budget will not derail this year's fiscal deficit target of four per cent of GDP, as the latest federal revenue outturn will cover the additional spending," he said.
This means that the budget office has assessed the expenditure stream and revenue parameters for the remainder of the year.
"If not for the recent cut in the fuel subsidy, which will result in savings of RM1.1 billion this year, the supplementary expenditure for fuel subsidy would have been higher," Lee added.
Looking at past trends, the government has consistently met its deficit targets despite supplementary budgets.
On Budget 2014, CIMB IB said it will be a keenly watched event as the government must draw up an action timeline to assure investors that it has the political resolve to address the country's fiscal issues without delay.
Meanwhile, Singapore-based Nomura Research said the supplementary budget can be easily funded with stronger-than-budgeted revenues.
Apart from higher petroleum and extra non-tax revenues, there is lower spending on development following the government's announcement to slow the implementation of some projects.
"This would lead to a fiscal slippage of about 0.3 per cent of GDP, bringing the full-year fiscal deficit to 4.3 per cent of GDP, by our estimates."
There is room to lower development expenditures further which should allow the four per cent fiscal deficit target to remain within reach.
However, it said, Malaysia needs to improve its fiscal position significantly as the government inches closer to its fiscal limits. "This will depend on the government's discipline in sticking to its fiscal consolidation agenda."