Budget Deficit

Budget was announced last week. One of the interesting feature is that Malaysia is suffering from a budget deficit. The government spending is larger than the tax revenue collected. The deficit accounts for 3.2% to 4.8% of the country's GDP.

What are the impacts resulting from the deficit?

1) Government would have to use its reserves to finance the deficit
2) Greater accumulation of government debts if the deficit is financed by foreign funds
3) Depreciation of RM against major currencies

It is reported here in the local online newspaper

The ringgit extended declines against the US dollar yesterday, whacked by a bigger-than-expected budget deficit unveiled by the Government last week.

Some analysts have raised concerns that the falling crude oil price will add pressure to the economy, as Malaysia will earn less from lower oil export prices.

The ringgit was last traded at 3.4264 against the US dollar yesterday, the worst level since late September last year. The market was closed on Monday for the National Day holiday.

The US dollar advanced against almost all Asian currencies yesterday, Bloomberg data showed.