Moody’s sticks to its view on Malaysia debt load
RATINGS agency Moody’s Investors Service is maintaining its estimate of Malaysia's direct government debt at 50.8 per cent of GDP in 2017.
It said on Wednesday its assessment of contingent liability risks posed by non-financial sector public institutions has also not changed following some statements by the new federal government led by Pakatan Harapan, which won the 14th general election on May 9.
“However, the new administration's treatment of large infrastructure projects that may be placed under review but have benefited from government-guaranteed loans in the past, and outstanding debt from state fund 1Malaysia Development Bhd (1MDB, unrated), will play an important role in determining risks that contingent liabilities pose to the credit profile,” it said.
Moody's said fiscal measures are a particular area of focus, given that the country's high debt burden acts as a credit constraint.
“Consequently, to what extent the new government achieves fiscal deficit consolidation will be vital in gauging the eventual effects on Malaysia's fiscal metrics and credit profile,” it said in a report entitled: "Government of Malaysia: FAQ on credit implications of the new government's policies".
Commenting on the impact of the new government's removal of the country's goods and services tax (GST), Moody's said in the absence of effective compensatory fiscal measures, “this development is credit negative because it increases the government's reliance on oilrelated revenue and narrows the tax base”.
Moody's estimated revenue lost from the scrapped GST would be around 1.1 per cent of GDP this year — even with some offsets — and 1.7 per cent beyond 2018; further straining Malaysia's fiscal strength.
On the planned reintroduction of fuel subsidies, it viewed this as credit negative because subsidies distort market-based pricing mechanisms.
The move could also strain both the fiscal position and the balance of payments while raising the exposure of government revenue to oil price movements.
On the growth outlook, Moody's pointed out the change in government will not materially alter growth trends in the near term.
The removal of the GST could boost private consumption in the short term.
“However, a review of large infrastructure projects could also result in any pick-up in investment being more spread out than Moody's had previously anticipated,” it said.