KUALA LUMPUR: Budget 2018 supports growth while still focusing on fiscal consolidation with the country’s respective global- and ASEAN-scale gA2 and seaAAA sovereign ratings remain intact, underscored by a still-robust economy growth projected at 5.2 per cent in 2018.
The fiscal deficit target of 2.8 per cent of gross domestic product (GDP) in 2018 reflects the government’s commitment to meeting its near-balanced target by 2020, RAM Ratings said today.
Nonetheless, more significant fiscal measures would be required to attain the goal, it said.
It also expect the government to meet its targeted budget deficit of three per cent of GDP in 2017, on the back of earlier fiscal consolidation efforts, the rating agency said in a statement here, today
Meanwhile, RAM said Malaysia’s fiscal revenue has improved structurally following the introduction of the Goods and Services Tax in 2015, with continued improvement in tax administration and collection.
“This has rendered Malaysia fiscal position more resilient against oil price shocks in recent years, and is reflected in the expected 6.4 per cent growth in fiscal revenue in 2018 (based on a realistic oil price assumption of US$52 per barrel),” it said.
This is slightly faster than the estimated 6.1 per cent growth in 2016, and a stark contrast to the three per cent contraction in 2015.
It provides sufficient fiscal space for the various growth strategies under Budget 2018 while maintaining overall fiscal consolidation.
“Given the anticipated reduction in the fiscal deficit, we expect the government’s debt level to come in at 50.2 per cent of GDP in 2018 (RAM’s projection for 2017: 51.3 per cent of GDP),” RAM said.
Notably, development expenditure has been relatively flat since 2013 and remains so under Budget 2018, despite the roll-out of sizeable infrastructure projects in the last few years due to off-balance sheet financing.
This, it said has translated into a heftier government-guaranteed debt load, from 11.8 per cent of GDP in 2011 to 16.9 per cent in second quarter of 2017.
“Over the long term, we envisage the level of contingent liabilities to increase at a measured pace amid continued roll out of infrastructure projects which are essential for Malaysia’s development,” it added. –Bernama