MALAYSIA’S fiscal deficit is expected to rise to 5.8-6% of the gross domestic product following a fall in crude oil prices to an average of US$41 per barrel between January and June, Finance Minister Tengku Zafrul Aziz said today. 

The price of crude was US$61 per barrel when Budget 2020 was drawn up. An earlier forecast put the fiscal deficit at of 3.2% of GDP.

“Every US$1 per barrel drop in crude oil prices will have an impact of RM300 million on the federal government’s revenue, so the federal government’s deficit will rise,” he said in reply to a supplementary question from Amiruddin Hamzah (Kubang Pasu-Independent) in the Dewan Rakyat today. 

Tengku Zafrul said RM295 billion worth of aid in the economic stimulus and recovery packages is one-off in nature and will not continue to burden the federal government in the medium and long term.

“The packages only involve a direct fiscal injection totalling RM45 billion. 

“This is one of the government’s strategies to reduce the fiscal deficit in the medium term in stages and ensure the nation’s fiscal and debt situation is under control,” he added.

Tengku Zafrul said the government reduced the deficit to 3.8% in 2013, and to 3.4% at end-2019 from 6.7% in 2009 after the global economic crisis.

“At this point in time, the government is using the Medium Term Fiscal Framework (MTFF) for guidance in the formulation of fiscal consolidation strategies for the medium term (three to five years) besides being in line with the long-term Malaysia Plan.

“The government is also in the process of formulating a fiscal responsibility act to ensure better and more transparent fiscal and debt management.

“The government is confident that the fiscal deficit can be reduced in stages in the medium term.” – Bernama, July 21, 2020.