Malaysia’s fiscal deficit to narrow to 3.3 pct of GDP
KUCHING: RAM Ratings projects Malaysia’s fiscal deficit to narrow to 3.3 per cent of gross domestic product (GDP) in 2019 (from an estimated 3.6 per cent in 2018) amid still-resilient domestic demand growth, the implementation of various fiscal measures and ongoing institutional reforms.
In a press statement, RAM Ratings said: “The 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 per cent of GDP throughout 2019 to 2021, is considered achievable and highlights its commitment to fiscal consolidation.”
Aside from that, it said, fiscal revenue, excluding the Petronas special dividend, is expected to only edge up 1.4 per cent to RM236.9 billion (or 15.5 per cent of GDP) in 2019, a pale comparison to the 3.8 per cent growth in 2017.
“This highlights the role of oil and gas (O&G)-related revenue – which is expected to account for 30.8 per cent of total revenue (inclusive of dividends) next year – as a significant stop-gap revenue source as new fiscal measures are implemented,” it added.
In the long run, it expected Malaysia’s revenue to be less reliant on O&G-related earnings amid the introduction of new revenue sources and ongoing institutional reforms.
“These will be complemented, the medium term, by a likely increase in returns from its investments and by tapping other non-conventional sources of revenue,” it explained.
On the government expenditure’s, RAM Ratings noted that excluding the aforementioned tax refunds, it is anticipated to increase 1.5 per cent to RM277.6
The 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.
billion in 2019, i.e. below the 20122017 average growth of four per cent.
“The deceleration in fiscal spending is largely due to the better targeting of bonuses for civil servants, the restructuring of subsidies and social assistance programmes, as well as 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,” it said.
Meanwhile, it noted that government debt is projected to remain elevated at 51.4 per cent of GDP in 2019, albeit lower than the estimated 51.6 per cent in 2018.
It said: “This ratio is significant as the country’s debt-servicing cost of 14.2 per cent of total revenue (excluding the special dividend from Petronas) is elevated and trending upwards compared to Malaysia’s regional peers.
“Moreover, these ratios are not fully reflective of the sovereign’s indebtedness as various offbalance-sheet debts, which had been taken up to meet development objectives in the past, are being serviced by the Government under different expenditure items.”
Based on this definition, RAM estimates total effective debt to come up to 65.7 per cent of GDP by end-2018.
“The cancellation of mega development projects and the Government’s intention of limiting the use of debt guarantees as well as improving administrative procedures for public- privatepartnership projects will gradually ease this ratio,” it added.
All in, RAM Ratings believed that institutional reforms would be pivotal to the determination of Malaysia’s fiscal trajectory. Turn to Page B2, Col 4
RAM Ratings