Fitch Solutions maintains Malaysia’s 2018 and 2019 budget deficit at 3.7pct
KUALA LUMPUR: Fitch Solutions has maintained its 2018 and 2019 budget deficit forecasts for Malaysia at 3.7 per cent of gross domestic product (GDP).
The firm remained cautious about the government’s plans to narrow its fiscal shortfall to 3.4 per cent of GDP next year.
This was due to concerns over greater reliance on oil revenues, rather than more significant revenue-raising policies, amid an uncertain global macroeconomic outlook.
“Our forecast for 2019 real GDP growth to come in at 4.5 per cent, lower than the government’s forecast of 4.9 per cent, also suggests that Putrajaya’s revenue projections are too optimistic,” Fitch said in a report.
Fitch said after having signalled to the electorate and investors by warning for weeks that 2019 Budget would involve “pain and sacrifice” on its part, the government had instead proposed a larger budget of RM314.6 billion for fiscal year 2019, an increase of 8.3 per cent from 2018’s revised figure of RM290.4 billion. This was made possible with a RM30 billion special dividend that the government expects to receive from national oil company Petroliam Nasional Bhd (Petronas).
It said including regular dividends of RM24 billion, Petronas would be funding 17.2 per cent of expenditures next year, highlighting Malaysia’s continued reliance on oil revenues.
Excluding the special dividend, it said total government revenues in 2019 would have contracted by two per cent to RM231.8 billion from 2018’s RM236.5 billion, a reflection of the government’s challenges associated with broadening the tax base to make up for the decreased tax intake from reinstating the Sales and Services Tax since September.
Besides that, it said Malaysia’s public debt as a share of GDP was likely to remain high over the coming years.
It said the rising debt would reduce Putrajaya’s ability to respond to negative shocks to the economy, especially from external events.
According to data from Bank Negara Malaysia, total public debt, including debt guaranteed by the federal government, stood at RM983.6 billion as of second quarter (Q2) 2018, which was about 70.7 per cent of annual GDP.
“Given that we are less optimistic on the government fiscal deficit reduction plans, we expect elevated debt to likely outlast the current government’s term (2018-2023),” it said.
Fitch said domestic debt had taken the lion’s share of the total at 81.3 per cent, and as a share of GDP, it was equivalent to 57.5 per cent as of Q2 2018, exceeding the government’s self-imposed domestic debt limit of 55 per cent of GDP.
“This leaves an economy, which is about to go through a slowdown engineered by the government to right the country’s finances, vulnerable to shocks in an increasingly uncertain external environment, as the high level of debt is a constraint on the government’s ability to stimulate growth,” it said.