KUALA LUMPUR: Moody’s Investor Service has raised concerns on Malaysia’s ability to meet its budget deficit target in the medium-term.
Moody’s cited rising debt servicing costs and dwindling oil revenues for its concern, according to a report in the Nikkei Asian Review (NAR).
On Friday, Prime Minister Najib Razak unveiled his government’s budget for 2017 of RM260.8 billion. Describing it as “prudent spending”, Najib said Malaysia would achieve a fiscal deficit target of 3 per cent of gross domestic product in 2017, compared with 3.1 per cent in 2016.
While Malaysia’s commitment to achieving fiscal balance is “credit-positive,” Moody’s said it risks missing the zero deficit target in 2020 without major fiscal reforms, according to the NAR report.
The rating agency said on Monday that revenue collection in the first half of 2016 was down because of weak oil prices.
This is mainly because Petronas’ contribution to the national treasury has been hit by the drop in world oil prices.
“As a result, it may be challenging for the government to meet its 3.1 per cent of GDP fiscal deficit target for this year,” NAR quoted Moody’s as saying.
The rating agency also noted that the government’s debt as a percentage of GDP remained “well above the median” among peers.
Malaysia’s projected debt service expenditure is expected to grow 9.7 per cent this year, compared with 7.5 per cent in 2015, said the NAR report.
The Malaysian Government has projected economic growth of between 4 per cent and 5 per cent for 2017, slightly better than 2016’s 4 per cent to 4.5 per cent.
The NAR report said economists believed the target was possible but that they also warned of downside risk.
“Uncertainties ranging from China’s slowdown, to the US Fed’s possible rate hike to Brexit as well as the low crude oil prices may throw a spanner in the works for the recovery of Malaysia’s external sector,” Kenanga Investment Bank said in a report on Monday.