KUALA LUMPUR: RAM Ratings Services Bhd has projected Malaysia’s fiscal deficit in 2019 to narrow to 3.3 per cent of the Gross Domestic Product (GDP) 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.
It said the government’s Medium-Term Fiscal Framework, which targets an average budgetary shortfall of 3.1 per cent of the GDP throughout 2019-2021, is considered achievable, highlighting the government’s commitment to fiscal consolidation.
In a statement today, the ratings agency said fiscal revenue, excluding Petronas’ special dividend, is expected to only edge up by 1.4 per cent to RM236.9 billion (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.
“In the long run, Malaysia’s revenue is envisaged to be less reliant on O&G-related earnings amid the introduction of new revenue sources and ongoing institutional reforms, to be complemented in the medium term by a likely increase in returns from investments and by tapping other non-conventional sources of revenue,” it added.
The ratings agency also anticipates government expenditure - excluding the aforementioned tax refunds - to increase by 1.5 per cent to RM277.6 billion in 2019 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.
Meanwhile, government debt is projected to remain elevated at 51.4 per cent of the GDP next year as the country’s debt-servicing cost, which is 14.2 per cent of total revenue (excluding the special dividend from Petronas) is elevated and trending upwards compared to Malaysia’s regional peers.
RAM Ratings said the main risks to Malaysia’s fiscal performance include the fulfilment of more fiscallyonerous political commitments and lower-than-expected global energy prices, which would adversely affect its O&G-related earnings.