‘Fiscal measures remain supportive of growth while focusing on consolidation’

KUALA LUMPUR: The fiscal measures announced under Malaysia’s 2017 Budget remain supportive of growth while still focused on fiscal consolidation, said RAM Rating Services.

Despite reduced oil-related revenue, the rating agency said the country’s respective global- and Asean-scale “A” and “AAA” sovereign ratings remained intact, underscored by a projected gross domestic product (GDP) growth of 4.5 per cent next year amid the said reforms.

RAM senior economist of sovereign ratings Jason Fong said despite the challenges of meeting 3.1 per cent deficit target this year, the budgeted fiscal deficit of three per cent of GDP next year underlined the government’s commitment to consolidation.

In a statement yesterday, Fong said under the 2017 Budget, fiscal expenditure would only be lifted a modest 2.3 per cent as the government intended to balance its growth-supportive policies with ongoing fiscal consolidation.

Notably, he said there would be a reduction of up to RM4 billion in supplies and services (which, as an expenditure item, the government has been spending less than budgeted on since 2014).

“Meanwhile, subsidies will decline by as much as RM16 billion from the previous budget. Given the mild fiscal consolidation, we do not expect much variation in the government’s debt level next year,” he said.

RAM head of sovereign ratings Esther Lai said “We envisage the level of contingent debt to also remain relatively stable amid the more modest pace of infrastructure development next year.”

However, she said Malaysia’s open economy renders it sensitive to external shocks, which can impair its fiscal performance. “Moreover, we expect the slower pace of consolidation to necessitate the implementation of more significant measures in the near term, to enable the government to meet its almost-balanced target by 2020.”

Despite the challenges of meeting 3.1 per cent deficit target this year, the budgeted fiscal deficit of three per cent of GDP next year underlines the government’s commitment to consolidation.” Jason Fong

RAM senior economist