KUALA LUMPUR: The government is expected to achieve the fiscal deficit target of 4.3 percent set for this year even with the delay in RON95 subsidy rationalisation to monitor the impact of the targeted diesel subsidy implemented on June 10.

Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said this expectation is based on current developments in the country's economy, including resilient Gross Domestic Product (GDP) estimated for the second quarter.

"I do not believe that the deficit target set cannot be achieved if the government does not implement targeted subsidies for RON95.Furthermore, the country's GDP in the second quarter is also robust and exceeds initial estimates, driven by a strong domestic economy as well as increasing and recovering exports," he told Berita Harian.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the deficit target is indeed possible if the rapid economic growth in the first half at 5.0 percent can be maintained.

"This is due to adjustments in service tax rates, introduction of new taxes, rationalisation of electricity and diesel subsidies, helping efforts to reduce the fiscal deficit.Credit rating agencies are expected to provide cautious reviews due to the significant value of RON95 subsidies. However, adjustments in tax instruments and other subsidies still demonstrate the government's commitment to maintaining high financial discipline levels," he said.

"In addition, the implementation of the Fiscal Responsibility Act (FRA) clearly demonstrates efforts towards disciplined financial administration through Parliamentary Act," Mohd Afzanizam added.

Commenting on the impact of targeted diesel subsidy measures on inflation, he said any policy changes should consider their overall economic impact, especially since reform policies such as service tax increases and rationalisation of diesel and electricity subsidies have already been implemented.

"If the government wants to ensure a 'cooling-off period' to observe the effects of past policies on the national economy, it may be reasonable," he said.

Last Monday, Prime Minister Datuk Seri Anwar Ibrahim said the implementation of targeted subsidy rationalisation involving RON95 fuel is not currently under consideration.

He said the government wants to focus on explaining the rationalisation of diesel subsidies to the people first, before implementing it.

"(Rationalisation of RON95 subsidies) is not under consideration now, we want to manage it with diesel, provide proper understanding, because sometimes it can be confusing.I say, if there are real issues with diesel, inform (the government), we don't want to burden the people. But if we don't act, there will be no increase in revenue, no reduction in debt," he said after officiating the 2024 National Tax Conference in Kuala Lumpur.

Targeted diesel subsidies, which began on June 10, are expected to save RM4 billion annually while strengthening the country's financial position for the long term.

https://www.nst.com.my/business/economy/2024/07/1081323/2024-fiscal-deficit-target-achievable-despite-delay-ron95-subsidy