KUALA LUMPUR: STANDARD & Poor’s (S&P) said the 2016 Budget adjustment yesterday showed the government remains on the fiscal consolidation path to balance its books.
Malaysia has gradually lowered its deficit to gross domestic product since 2010 and the 3.1 per cent target is in line with the expectation of a fiscal consolidation over the medium term.
“In our view, Malaysia’s proactive budget cutbacks showed its fiscal flexibility,” it said when commenting on the fiscal budget adjustment yesterday.
Further significant reforms would be crucial, said S&P.
Malaysia’s previously slow fiscal consolidation stemmed from its relatively weak revenue structure and an inability to reduce high subsidies.
“We view the country’s fiscal initiatives, such as the implementation of the Goods and Services Tax and removal of petroleum subsidies, to have reduced the stress.”
The country’s economic growth prospects remained the most important factor driving its fiscal consolidation, it said.
“Although the budget adjustment has measures to boost consumption, we do not envisage them to have a significant impact on overall economic growth.”
S&P said the adjusted budget assumed oil at US$30 (RM126) to US$35 per barrel, lower than its US$40 assumption for this year.
It added that Malaysia’s sovereign rating and outlook were not affected by the changes in the budget.