KUALA LUMPUR: Malaysia's fall in revenue (to its GDP) to its lowest level since 2000 with a corresponding dip in expenditure should sustain its fiscal consolidation target, said Moody's.
The fiscal deficit has been narrowed for the sixth year.
It was commenting on the government's package to maintain the trend of fiscal deficit consolidation last week.
"The administration further demonstrated its credit-positive commitment to fiscal consolidation by retaining its deficit target at 3.1 per cent of GDP in 2016, and emphasising that government debt will not exceed its cap of 55 per cent of GDP," said analysts Serena Wang and Christian de Guzman.
Revenue measures include enhancing tax administration, introducing tax amnesties, tightening duty-free access to alcohol and tobacco products and the rebidding of the national telecommunications spectrum.
It also announced tax relief to preserve the purchasing power of low-income households. In sum, these revenue measures do not fully offset the negative effects of lower oil prices on the government's income.
But they pointed out that although fiscal reforms have helped to reduce the Malaysian government's reliance on oil and gas-related receipts, such items still account for about 20 per cent of government revenue.
Given that global oil prices have dipped to around US$30 per barrel, the government has lowered its budget assumptions for oil prices in 2016 to $30-$35 per barrel from $48 in the original budget.
This alone translates into a decline in revenue of RM7-RM9 billion.
"In sum, these revenue measures do not fully offset the negative effects of lower oil prices on the government's income."
The increasingly volatile global oil prices in recent months, posing further downward risk to revenue and, ultimately, fiscal balances.