KUALA LUMPUR, Oct 12  -- Although the government remains committed to fiscal prudence over the next few years with a more gradual pace of fiscal consolidation for 2020, it still appears challenging given the lack of revenue space,  Standard Chartered Bank Global Research said today.

Finance Minister Lim Guan Eng when tabling the 2020 Budget yesterday said the 2020 fiscal deficit target was reduced to 3.2 per cent of Gross Domestic Product (GDP), slightly higher than what was projected in the 2019 budget for 2020.

In 2019, it is expected to be 3.4 per cent.

According to the government’s Medium-Term Fiscal Framework (MTFF),  it is projecting an average fiscal deficit of 2.6 per cent of GDP over 2021-22, it said in a statement here, today.

“This may be a challenging target. Assuming a uniform reduction in the fiscal deficit, the government may have to target a deficit of 2.8 per cent and 2.6 per cent of GDP for 2021 and 2022, respectively.”

 The means to reaching the deficit target appears to be expenditure rationalisation over the medium term as the government did not introduce any major revenue measures for 2020.

According to the MTFF, total revenue to GDP is targeted at 15 per cent of GDP.

“Our estimate for 2020 revenue is 15.2 per cent of GDP. From a growth perspective, the MTFF implies revenue growth of 4.2 per cent per annum in 2021 and 2022, higher than the average 2.3 per cent growth during 2016-20.”

That said, any upside surprise, such as more efficient tax collection or new taxes over the new few years, should relieve pressure on expenditure rationalisation, said the research house.

MIDF Research also acknowledged that the government is still steadfast with the fiscal consolidation plan and our budget deficit has been in a gradual decline since 2009, from the height of 6.7 per cent to 3.2 per cent in 2020.

“(However), the prospect of achieving a balanced budget over the next 3 years is indeed tough particularly with the environment of global economic and market uncertainties as well as volatile commodity prices,” it said.

-- BERNAMA