- Focus on striking a balance between capital and people economy. The 2016 National Budget is premised on the theme of “Prospering the Rakyat”. The allocation for development spending advanced by 9.7% to RM52.0bil, including RM2bil for contingencies (2015: RM47.4bil). Meanwhile, operational expenditure amounts to RM215.2bil or +0.9% YoY (2015: RM213.3bil).

- Government maintains fiscal prudence. Total government revenue is expected to amount to RM225.7bil (or +1.4% YoY), driven by an increase in tax revenue. In all, the government is expected to strengthen its fiscal stance in 2016. For 2016, the government projects a fiscal deficit of 3.1% as revenue improves amid the implementation of GST, and GDP registers a steady growth rate of 4%-5%.

- Oil-related revenue to decline amid weak global crude oil prices. Oil-related revenue will probably account for 14.1% or RM31.7bil of total revenue in 2016 (vs. RM44bil or 19.7% of total revenue in 2015). Particularly, petroleum income tax is expected to decline by 2.1% to RM9.3bil in 2016 from RM9.5bil in 2015. The crude oil price assumption for Brent is USD50 per barrel for 2015 and USD48-60 per barrel for 2016-2018.

- More handouts via BR1M. In aggregate, BR1M assistance is expected to benefit 4.7mil households and 2.7mil single individuals with an allocation of RM5.9bil. A new category will be introduced for all participants in the e-Kasih database, with monthly income below RM1,000, who will now receive BR1M of RM1,050. For households with monthly income below RM3,000, cash handouts will rise to RM1,000 (from RM950). Meanwhile, household income of between RM3,000 and RM4,000 will be eligible for BR1M payment of RM800 (up from RM750). Also, individuals with less than RM2,000 will receive RM400 in handouts (instead of RM350).

- Deficit of 3.1% for 2016. Based on the medium-term fiscal framework, the deficit level is targeted to be at an average of 2.7% of GDP between 2016 and 2018.The underlying assumptions for 2016 to 2018 include real GDP growth rates of 4.5%-5.5% and crude oil prices of between USD48-60 per barrel. Risks ahead for the Malaysian economy include:- (i) higher domestic cost pressure amid subsidy rationalisation; (ii) weak Ringgit; (iii) slowdown in global growth; (iv) impending rate hike in the US; and (v) weaker than expected global crude oil prices.

Source: AmeSecurities Research - 26 Oct 2015