HIGHLIGHTS - Malaysia's 2016 Budget

Oct 23 Prime Minister Najib Razak announced Malaysia's 2016 budget on Friday, highlighting how the government plans to narrow its budget deficit, address rising cost of living. The government also released an economic report.

Following are highlights of Najib's ongoing speech to parliament

BUDGET ALLOCATION

- 2016 budget allocates total 267.2 billion ringgit ($63.32 billion), an increase from a revised allocation of 260.7 billion for 2015. The initial allocation for 2015 was 273.9 billion.

- For 2016, federal government revenue collection is projected at 225.7 billion ringgit, up 3.2 billion ringgit from 2015

TAXES

- Income tax increased from 25 percent to 26 percent for people earning between 600,000 ringgit and 1 million ringgit. Increased to 28 percent for those earning above 1 million ringgit. Some tax relief measures to help middle income wage earners.

- Goods and services tax to increase government revenue by 39 billion ringgit, versus 27 billion ringgit in the first eight months of 2015. Some basic goods to be zero-rated, including over-the-counter drugs, baby milk, nuts based food, noodles.

EXPENDITURE

- 41.3 billion ringgit allocated to improve education

- Defence Ministry allocated 17.1 billion ringgit

- Allocation of 30.1 billion for development projects, 5.2 billion for security, social development gets 13.1 billion

- Government allocates 1.2 bln ringgit to the tourism industry

- Majlis Amanah Rakyat, an agency to facilitate the development of ethnic Malays and other indigenous Malaysians, allocated 3.7 billion ringgit

SUBSIDIES AND HANDOUTS

- Spending allocation for Bantuan Rakyat 1Malaysia (BR1M), a programme providing cash assistance for low income households, will be raised to 5.9 billion ringgit in 2016, up from an estimated 4.9 billion in 2015.

DEVELOPMENT

- Affordable housing projects allocated 1.6 billion ringgit, to be spent building 175,000 houses

- 900 million ringgit allocated to resolve Kuala Lumpur traffic congestion

- Telecommunications infrastructure allocated 1.2 billion ringgit

- 1.4 billion ringgit earmarked for development of rural roads nationwide. An-Borneo highway to be toll free.

- Government to improve improve infrastructure in rural areas, including building houses and water supply

- 5.3 billion ringgit allocated to modernize agricultural sector

- 515 million ringgit allocated to improve electricity supply in Sabah state

OIL PROJECT

- Pengerang oil project to receive 18 bln ringgit in 2016

MINIMUM WAGE

- Increased from 900 ringgit per month to 1,000 ringgit in peninsular Malaysia

MACROECONOMIC HIGHLIGHTS

- Current account surplus in 2016 to be down more than half to 11.3 billion ringgit ($2.63 billion) from 23.4 billion ringgit this year and 47.3 billion ringgit in 2014

- Economic growth forecasts at 4.0-5.0 percent for 2016, compared with 4.5-5.0 percent this year

- Fiscal deficit for 2016 reduced to 3.1 percent of gross domestic product, down from 3.2 percent in 2015 and 3.4 percent last year

- Exports forecast to rebound 1.4 percent in 2016 after a 0.7 percent fall this year

- Inflation seen at 2.0-3.0 percent in 2016, against 2.0-2.5 percent this year

- Government debt limit to remain at 55 percent of GDP in 2016, forecasting a ratio of 54.0 percent this year and slightly up from 52.7 percent in 2014

- Oil and gas related revenues seen at 14.1 percent of total revenue in 2016, down from 19.7 percent in 2015

- Goods and Services Tax (GST) expected to raise 39 billion next year, against 27 billion ringgit collected in the first eight months of 2015

- Subsidy allocations seen falling slightly to 26.1 billion ringgit from 26.2 billion ringgit this year

($1 = 4.2200 ringgit) (Reporting by Kuala Lumpur Bureau; Editing by Simon Cameron-Moore)

AirAsia X risk reward not attractive

Low-cost medium-haul carrier AirAsia X’s (AAX) 3Q15 operating statistics were uninspiring and showcase that management still has much to do in its effort to turnaround the group, says Maybank Investment Bank Research.

It said on Monday that passenger traffic shrank by 13.6% on-year due to capacity cuts and a drop in seat load factor to 75.1% (-5.5 percentage points on-year). 
“This is a stark contrast against the industry whereby many airlines enjoyed record high load factors and strong traffic growth,” it said.

Maybank Research pointed out the 3Q15 results to be released on Nov 25 would not inspire much confidence in the stock and may exacerbate concerns over management’s ability to turn the group around. 

“Nevertheless, we believe that many of the initiatives undertaken are fitting, and will probably begin to yield benefits in 4Q15,” it said.

The research house said the third quarter is seasonally a low period and AAX has produced losses before, even during the good times. 

However, Maybank Research expects some noteworthy improvement on a year-on-year and quarter-on-quarter basis due to the benefit of lower fuel price and management’s capacity cuts on the weak routes. 

“We forecast a core net loss of RM62.6mil, which is a 66% improvement on-year. This would lift 9M15 core net loss to RM233.5mil (-43% on-year), which is in line with our full year loss estimate of RM204.5mil.

“Generally we are negative on the stock as we think the risk-reward is not attractive.  However, the stock is trading at just 0.86 times price-to-book value (P/BV) which suggests limited downside.  Maintain Hod, with an unchanged target price of 21 sen based on 1.0 times FY16 P/BV,” it said.

Ringgit slumps to 16-year low, money changers warned against hoarding foreign currencies

Money changers should not hoard foreign currencies as this could pose risks in a volatile market, the Malaysian Association of Money Services Businesses (MAMSB) warned as the ringgit hits its lowest in 16 years.

MAMSB president Ramasamy Veeran said it was never a practice to stockpile and withhold foreign currencies in order to make a profit from the weak ringgit.

"It is not a standard practice or a norm… Further, there are risks associated in stockpiling foreign currencies in a volatile local and global market," he told The Malaysian Insider recently.

"The risk would be exchange rate risk whereby if there are adverse changes in currency exchange rates, the money changer could suffer a loss if they are stockpiling foreign currencies."

Ramasamy's comments come as the ringgit slid to a 16-year low on July 6, falling to 3.8092 to the US dollar.

It was last at this level from 1998 to 2005 during which it was pegged to the US dollar at 3.8 following the Asian financial crisis which was blamed on currency speculators.

This time, the ringgit's slide comes amid low crude oil prices, as well as damning allegations against Prime Minister Datuk Seri Najib Razak and his brainchild, state investment firm 1Malaysia Development Berhad (1MDB).

Najib is alleged to have received billions of ringgit from entities linked to 1MDB in his personal bank accounts.

Ramasamy said MAMSB has yet to receive any complaints about money changers withholding foreign currencies but warned such actions could impact on various sectors of the economy.

"Stockpiling and withholding of foreign currencies can create an artificial shortage of foreign currency which can impact areas, such as tourism."

Under its governing rules, MAMSB can act against money changers found to be hoarding foreign currencies in order to make profits due to the ringgit's slump, Ramasamy said.

"Our members have been advised to ensure that all customers are handled in fair and transparent manner.

“If any complaints are received on this matter, necessary action will be taken in accordance to our governing rules," he said, adding that the public could lodge complaints at the association's website (www.mamsb.org.my) or with Bank Negara Malaysia.

The ringgit is Asia’s worst-performing this year and has not been helped by ongoing allegations against Najib, 1MDB, resulting in political uncertainty.

1MDB's debts of RM42 billion, incurred in six years of operations, have also raised concerns over Malaysia's credit rating, although the central bank has said that the state investor's problems alone did not pose a systemic risk to the country's economy.

Fitch Ratings recently revised its outlook for Malaysia to stable from negative previously.

Controversies surrounding 1MDB are not yet over, as the fund is currently being investigated by a special government task force for alleged financial wrongdoing, and its books are being inspected by the national auditors for review by a parliamentary bi-partisan committee on public accounts. – July 22, 2015.

Malaysia Air Unhealthy Around Kuala Lumpur as Haze Persists

Malaysia’s air quality in six districts around Kuala Lumpur remains at “very unhealthy level” because of haze from Indonesian forest fires, according to pollution readings from the Department of Environment.

The country’s air pollutant index in these areas ranges from 201 to 300, according to data from the department’s website. Readings of between zero and 50 indicate good air quality, while those between 51 and 100 are moderate. Levels between 101 and 200 are unhealthy, while 201 and 300 are considered very unhealthy and more than 301 hazardous.

The runways of 3 airports in Malaysia reopened Sunday after being forced to close due to the deteriorating haze earlier in the day, Malaysia Airports Bhd. said in a tweet. Sultan Abdul Aziz Shah Airport in Subang, Sultan Abdul Halim Airport in Alor Setar and Sultan Azlan Shah Airport in Ipoh “are now reopened and all operations are running as usual,” the airport operator said. “However, all passengers travelling today are advised to check with their respective airlines in their flight schedules.”

All schools in Malaysia, apart from Kelantan, will be closed Monday and Tuesday, The Star reported on its website, citing Education Minister Datuk Seri Mahdzir Khalid.

In neighboring Singapore, while the air quality improved to “moderate” level, the pollution index for the next 12 hours may drop to unhealthy level, according to readings from the National Environment Agency. The country’s three-hourly pollution index was at 81 at 11 a.m. local time, the NEA said on its  website.

FINA, which is organizing the Swimming World Cup 2015 in Singapore, cancelled finals on the first day of the races Saturday due to the weather conditions, according to a statement on its website.

Forest fires in Indonesia are on track to become the worst on record, Agence France-Presse reported Friday, citing Robert Field, a Columbia University scientist based at the NASA Goddard Institute for Space Studies. Haze conditions in Singapore and southeast Sumatra are at levels close to those previously seen in 1997, AFP said.

Indonesia needs to give more serious commitment in combating haze as the problem is recurring every year, Bernama reported Sunday, citing Malaysia’s Deputy Prime Minister Ahmad Zahid Hamidi.