{"id":14724,"date":"2015-01-26T12:53:19","date_gmt":"2015-01-26T04:53:19","guid":{"rendered":"http:\/\/maddruid.com\/?p=14724"},"modified":"2015-01-27T17:25:20","modified_gmt":"2015-01-27T09:25:20","slug":"2763-is-the-new-3-2-deficit-ratio-achievable","status":"publish","type":"post","link":"https:\/\/maddruid.com\/?p=14724","title":{"rendered":"[2763] Is the new 3.2% deficit target achievable?"},"content":{"rendered":"

People are\u00a0asking me if the Malaysian government’s new 3.2% deficit ratio target is achievable. \u00a0I have read in the news that several politicians are skeptical about the target. I do not remember who said that but I feel\u00a0the sentiment is shared by many.<\/p>\n

But the only way to really answer this objectively is to run a sensitivity analysis.<\/p>\n

It is relatively easy to do a sensitivity analysis\u00a0and I have done one last week under the assumption of no expenditure cut. That one\u00a0shows\u00a0how the deficit ratio would react if the government had not changed its budget under a range of NGDP and revenue assumptions. I think it somewhat presents\u00a0the realistic worst-case scenario. The government said its fiscal\u00a0deficit would have gone up to 3.9% of GDP in 2015 without any expenditure cut. I think that would come close to my expectation (4.0%-4.1%), which is based on no revenue growth (not unreasonable) and at about 4%-5% NGDP growth. I am not reproducing the table here because I do not want to confuse the readers. If you are interested in that sensitivity analysis, you should revisit the post<\/a>.<\/p>\n

But that sensitivity analysis does not indicate whether the new 3.2% target is realistic. To answer that, it requires a bit more moving parts added into it. One additional\u00a0dimension is required to be exact.<\/p>\n

I am doing that here\u00a0by\u00a0showing 3 cases of revenue change under\u00a0a range of NGDP and expenditure assumptions (note\u00a0the not-so-small difference from the above model). To cut through the graphics, I think the 3.2% fiscal deficit ratio target is achievable if revenue grows by about 2% (I said about because I am too lazy to run a differential equation).<\/p>\n

Before that, some legends for the three charts at the bottom. The yellow-highlighted cells describe the would-be situations if the expenditure was not cut\u00a0(yes, it is a funny coincidence that the government had planned to increase its expenditure by 3.2% from 2014 in\u00a0the original budget). The red-highlighted cells show the deficit ratio under the January 20 revised budget expenditure figures (Under revised budget, expenditure would still grow\u00a01.2%.\u00a0So, please do not call this austerity).<\/p>\n

Here is the deficit ratio if 2015 revenue does not change from last year. Achieving 3.2% target seems impossible under this scenario (I wrote impossible because it would require a very strong NGDP growth at a time the GDP deflator appearing weak. If government revenue is flat this year, then my projection for the deficit would be about 3.6%):<\/p>\n

\"No<\/a><\/p>\n

Things would look a bit better if the government revenue would grow by 1% this year, but\u00a0it would miss the deficit target still as\u00a09% NGDP growth is beyond our reach, given current constraints:<\/p>\n

\"Revenue<\/a><\/p>\n

Under 2% revenue growth case, the 3.2% deficit ratio looks achievable:<\/p>\n

\"Revenue<\/a><\/p>\n

So, after reading through this, do you think the 3.2% deficit is achievable?<\/p>\n

Ultimately, your answer must rely on revenue and NGDP growth. I think the reasonable NGDP growth assumption is about 4%-5%. As for revenue, I am unsure at the moment. There are just too many moving parts that require further investigation but the original budget had it grown at 4.5%. It will definitely be lower than that this year.<\/p>\n","protected":false},"excerpt":{"rendered":"

People are\u00a0asking me if the Malaysian government’s new 3.2% deficit ratio target is achievable. \u00a0I have read in the news that several politicians are skeptical about the target. I do not remember who said that but I feel\u00a0the sentiment is shared by many. But the only way to really answer this objectively is to run […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[988,179,1689],"class_list":["post-14724","post","type-post","status-publish","format-standard","hentry","category-economics","tag-federal-budget","tag-fiscal-deficit","tag-sensitivity-analysis"],"_links":{"self":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts\/14724","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14724"}],"version-history":[{"count":10,"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts\/14724\/revisions"}],"predecessor-version":[{"id":14737,"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts\/14724\/revisions\/14737"}],"wp:attachment":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14724"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14724"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14724"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}