KUALA LUMPUR: The Malaysian government should likely meet its deficit target of 4.7% of gross domestic product (GDP) this year and would be able to maintain this level for 2013 despite the challenges both externally and domestically.
The government would also likely introduce a series of reforms in 2013 after the 13th general election, widely expected between November 2012 and February 2013, said Alliance Research in its comments about Standard & Poor’s (S&P) warning of downgrade for Malaysia.
It said the reforms would include the subsidy rationalisation plan, which would streamline the prices of petroleum products in line with global crude oil prices, as suggested by Performance Management and Delivery Unit (Pemandu) a couple of years ago.
Alliance Research also expected the goods and service tax (GST) may come in by end-2014, though the government has been stressing it would not be implemented for now.
It said though this had been a concern for quite some time, it did not think the ratio of external debt to GDP ratio would exceed the self-imposed limit of 55% of GDP this year.
Latest data showed that the ratio of federal government debt to GDP reached 51.8% at end-2011 and estimated to remain steady at around 53% for the current year.
However, actual data may likely come lower than expected, given the improved revenue amid stronger-than-expected GDP and better revenue collection as well as improved subsidy levels following easing commodity prices, it said.
In a report yesterday, S&P has warned a potential sovereign credit rating cut for Malaysia, if the government did not undertake reforms to cut spending to reduce its fiscal deficits.
Strategic reforms also included the introduction of a GST and subsidy cuts, according to the agency.
Last month, Fitch Ratings said in a report that Malaysia had yet to present a convincing plan to tackle the twin fiscal threats of its federal budget deficit and federal debt.
Fitch also said that data clearly showed public sector-linked activity had been a key driver of GDP growth for the last four quarters alongside robust private sector activity.