(File pix) Malaysia’s budgetary discipline is positive for the country’s credit profile, says Moody’s.

KUALA LUMPUR: Malaysia’s budgetary discipline is positive for the country’s credit profile, says Moody’s.

However, falling revenues and weakening debt affordability would make it challenging for the government to meet its 3.1 per cent of GDP fiscal deficit target for 2016, and a balanced budget by 2020, the rating agency said.

In tabling the 2017 Budget on Friday, Prime Minister and Finance Minister Datuk Seri Najib Razak said Malaysia is projecting a deficit of 3.0 per cent of GDP in 2017. Moody’s current rating for the country is A3 stable.

In the first half, the federal government recorded a deficit of RM32.8 billion. To reach the full-year target of RM38.7 billion, Moody's added, implies a second-half shortfall of only RM5.9 billion.

“For 2017, revenue remains the binding constraint to providing further support to the economy. The government projects dividends from Petronas to drop to RM13 billion. That will contribute to a decline in revenue to 16.6 per cent of GDP, from a recent peak of 21.4 per cent in 2012.

“While the prime minister alluded to measures to improve tax collection and compliance, the ongoing deceleration in economic growth does not support the budget projection of a combined 8.4 per cent increase in corporate and personal income taxes,” Moody’s said.