PETALING JAYA: Standard Chartered Global Research said the expected higher fiscal deficit of 3.2% of gross domestic product (GDP) in 2020 is unlikely to raise concerns about the ratings for Malaysia.
“The 2019 budget targeted narrowing the 2020 fiscal deficit to 3.0% of GDP from 3.4% in 2019. We project the 2020 deficit at 3.2%. Nevertheless, we do not expect this to raise rating concerns given the challenging economic outlook, as long as the medium-term fiscal consolidation target is adhered to,“ it said in a report today.
It noted that the pace of fiscal consolidation is expected to moderate amid weaker growth outlook.
“We expect a moderation in the pace of fiscal consolidation, given the soft economic outlook. This should not come as a surprise, as the government has hinted at a more gradual fiscal consolidation path.”
It added that a significant fiscal stimulus package is unlikely given still-resilient growth in Malaysia and the fall in non-oil-related revenue, which can be largely attributed to the goods and services to sales and service tax (GST-SST) shortfall.
Furthermore, the government has said that there are no plans for new tax measures in the 2020 budget.
“We expect the government to focus on rationalising expenditure, such as tax incentives, and tightening the administration of revenue collection.”
Excluding the one-off GST and income tax refunds of 3.5% of GDP, operating expenditure fell in the first half of 2019, reflecting the government’s commitment to expenditure rationalisation thus far. Development expenditure remained stable at 3.2% of GDP in first-half 2019.