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PETALING JAYA: RAM Ratings expects Malaysia’s fiscal deficit to narrow to 3.3% of gross domestic product (GDP) next year from an estimated 3.6% this year, on the back of the still-resilient domestic demand growth, implementation of fiscal measures and ongoing institutional reforms.
The 3.3% fiscal deficit estimate is slightly lower than the government forecast of 3.4%.
“Significant one-off events next year, including a RM30 billion special dividend from Petronas and RM37 billion of tax refunds, are not envisaged to meaningfully affect Malaysia’s medium-term fiscal trajectory per se.
“Meanwhile, the government’s Medium-Term Fiscal Framework, which targets an average budgetary shortfall of 3.1% of GDP throughout 2019-2021, is considered achievable and highlights its commitment to fiscal consolidation,” it said in a statement today.
Excluding the Petronas special dividend, fiscal revenue is expected to rise only 1.4% to RM236.9 billion or 15.5% of GDP in 2019, compared with the 3.8% growth in 2017. Oil and gas (O&G) related revenue, which is expected to make up 30.8% of revenue next year, will be a significant stop-gap revenue source as new fiscal measures are implemented.
In the long run, Malaysia will be less reliant on O&G related earnings with the introduction of new revenue sources and ongoing institutional reforms, which will be complemented in the medium term by a likely increase in returns from its investments and by tapping other non-conventional sources of revenue.
Excluding tax refunds, government expenditure is expected to rise 1.5% to RM277.6 billion in 2019, below the 2012-2017 average growth of 4%. The deceleration in fiscal spending is due to better targeting of bonuses for civil servants, restructuring of subsidies and social assistance programmes and better managed spending on supplies and services.
“While these are commendable efforts vis-à-vis curtailing government outlays, we expect some loss in efficiency that may reduce the anticipated overall fiscal savings during the early implementation phases of these measures. Nonetheless, fiscal expenditure is envisioned to slow down following the recent downscaling, postponement and/or cancellation of big-scale development projects,” said RAM.
Government debt is projected to remain at 51.4% of GDP in 2019, albeit lower than the estimated 51.6% this year. The rating agency said this ratio is significant as Malaysia’s debt-servicing cost of 14.2% of total revenue is elevated and trending upwards compared with regional peers.
“Moreover, these ratios are not fully reflective of the sovereign’s indebtedness as various off-balance-sheet debts, which had been taken up to meet development objectives in the past, are being serviced by the government under different expenditure items,” it added.
