KUALA LUMPUR: Malaysia’s “reasonably strong” gross domestic product (GDP) growth has remained its sovereign credit rating strength despite the impact of weaker external demand, says Fitch Ratings.
Although the country had been affected by a fall in revenue, it had not triggered a rating downgrade, said Fitch, pointing to the wave of 31 emerging market rating downgrades due to dependence on commodity export revenue.
The Goods and Services Tax revenue from last year also provided support to non-oil revenue.
Malaysia, which has been placed on an “A-” rating with stable outlook since the middle of last year, is likely to see a 3.4 per cent increase in revenue next year.
“Malaysia’s 2017 Budget points to further stability in public finances despite another decline in revenue from the oil and gas sector. It is better placed than many net commodity exporters to cope with the lingering effects of the negative shift in terms of trade,” said analyst Sagarika Chandra in a statement yesterday.
Malaysia is the largest net exporter of petroleum and natural gas products in Southeast Asia. It is estimated that oil and gas revenue will account for just 14.6 per cent of total revenue this year, down from 30 per cent two years ago.
Dividends from national oil company Petroliam Nasional Bhd (Petronas) are forecast to fall to RM13 billion next year from RM16 billion this year and RM29 billion in 2014.
Fitch expects the economy to grow by around four per cent this year and next year, which comes at the bottom end of the government’s four to five per cent target range for next year but above the median of Malaysia’s rating peers.
“Capital expenditure has fallen in the oil and gas sector, particularly at Petronas, but the impact on GDP growth has been partly offset by increases in consumer spending.”
Sagarika said household spending continues to be supported by a hike in public-sector salaries that took effect from July 1, and will receive another boost from a 26 per cent increase in transfers to lower-income households included in the 2017 Budget.
On fiscal deficit to GDP, Fitch said the three per cent target for next year is achievable although it expects deficit to come in at 3.2 per cent of GDP.
“We believe it is unlikely that the target will be missed by enough to push public debt above the self-imposed ceiling of 55 per cent of GDP,” she said, adding that government debt would remain under 54 per cent of GDP at the end of this year.
Meanwhile, Moody’s said Malaysia’s budgetary discipline is positive for the country’s credit profile but cautioned that other issues may put the government’s deficit target for this year at risk.
The international rating agency said 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 this year and a balanced budget by 2020.
In tabling the 2017 Budget on Friday, Prime Minister Datuk Seri Najib Razak said Malaysia is projecting a deficit of three per cent of GDP next year.
Moody’s current rating for the country is “A3” with stable outlook.
“Over the first six months of this year, a delay in dividend payments from Petronas contributed to the large revenue shortfall, with the national oil company remitting only around 37.5 per cent of a planned RM16 billion to the government.
“Other oil-related items, such as the petroleum income tax and royalties, exerted significant downward pressure, due to weak global oil prices. Non-oil items, such as receipts from corporate and personal income taxes, also fell in year-on-year terms,” Moody’s said in a report yesterday.
In the first half, the government recorded a deficit of RM32.8 billion. Moody’s said to reach the full-year target of RM38.7 billion implies a second-half shortfall of only RM5.9 billion, which would mark the narrowest half-year deficit since early 2011.
“For next year, revenue remains the binding constraint to providing further support to the economy.
“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,” said Moody’s.
The government has also curtailed spending, with expenditure as a share of GDP projected to fall to 19.6 per cent next year from 25.7 per cent in 2012, it pointed out.