KUALA LUMPUR (Jan 30): In the recalibrated Budget 2016 announced on Thursday, Putrajaya has decided to stick to its 3.1% fiscal consolidation target for 2016, maintain its 55% government debt-to-gross domestic product (GDP) ceiling, and still meet its minimum 4% GDP growth that was announced in October when oil was trading at US$48 per barrel, despite tougher external headwinds.

The expectation of revenue loss is between RM7 billion to RM9 billion, primarily from oil-related sources, as the oil price assumption is now between US$30 and US$35 a barrel, but Prime Minister Datuk Seri Najib Razak has given the assurance that Malaysia is well placed to weather another year of “external headwinds” with the recalibrated Budget 2016 to make up for any difference in state earnings.

Oil prices, he said, even at US$30 a barrel, will pose no threat to the country.

Even if oil prices fall to as low as US$20 per barrel, Malaysia will not need to review Budget 2016 due to the flexibility it will have from potential asset sales -- like the telecommunications spectrum tender -- according to Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah in an industry forum after the revised budget was announced.

Meanwhile, there is potential upside surprises that can't be ignored in view of the yet-to-be-quantified measures like the auctioning of the telecoms spectrum, selling land to better monetise government assets, tax audit and amnesty, and curbing leakages on tax-free islands, said Suahimi Ilias, Maybank Investment Bank's group chief economist told The Edge Malaysia in its Feb 1-Feb 7 cover story 'Shared Burden'.

But some experts still need convincing, with the primary complaint being a lack of details, the weekly wrote.

“Maintaining fiscal discipline is good but we are not entirely convinced that the fiscal deficit targets can be met, given the lack of details on specific cuts, the size of potential additional revenue [such as from a 900/1800 MHz spectrum tender] and the slowing economy,” said Chua Hak Bin, Bank of America Merrill Asean economist.

“The sense is spending cuts 70% while 30% new tax revenue [are] to make up for the loss of revenue [from lower oil prices]. It remains to be seen if slower economic growth will have a large negative impact on non-oil revenue, particularly corporate earnings and taxes,” he added.

As such, Chua has maintained his fiscal deficit projection at 3.5% last Thursday, while he waits to see “greater clarity on where [the cuts are] coming from” in the coming weeks.

“It will be quite a feat if Malaysia can maintain its fiscal deficit target at 3.1% this year despite the external headwinds,” he told the weekly.

The report also noted that Chua is concerned about Malaysia’s rising quasi-public debt of about 70% of GDP, widening public sector deficit and growing leverage of non-financial public corporations that are undertaking many infrastructure projects - and he is not the only one.

So are the projections realistic?

What about the impact of the two measures to arrest private consumption by putting more cash in the hands of households, i.e. the optional adjustment to private sector employee's mandatory contribution to the Employees Provident Fund, and the special tax relief of RM2,000 for those earning RM8,000 and below for the year of assessment 2015?

“The measures should help cushion the economic slowdown, although they might not be able to stimulate economic activity since both consumer and business sentiments are at very low levels,” one economist told the weekly.

If so, can the government count on households to deliver the much-needed stimulus that the Malaysian economy needs, in face of the higher cost of living now?

To read more about what were discussed and how oil slumps have historically affected countries the world over, pick up the latest copy of The Edge Malaysia from newsstands around you.

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