Malaysia may miss deficit target narrowly: Moody's
KUALA LUMPUR: Malaysia may miss its fiscal deficit target narrowly for 2020, said Moody’s Investor Service.
However, the international rating agency said the government looks likely to meet its deficit target this year, through a 13.1 per cent year-on-year increase in revenue and a 10.1 per cent rise in spending.
For revenue, this includes a RM30 billion special dividend from Petroliam Nasional Bhd while expenditure incorporates a one-off allocation for outstanding tax refunds of RM37 billion, it added.
The government had targeted a deficit of 3.2 per cent of gross domestic product in 2020, wider than its original three per cent goal, but smaller than a projected deficit of 3.4 per cent in 2019.
Moody’s said the dampening effect of slower nominal growth on revenue, combined with the difficulty of limiting spending when demand is weak, mean that the government is likely to narrowly miss its deficit target next year.
“Expectations of robust revenue growth present the main potential source of fiscal slippage in the budget,” it said.
Moody’s said the revenue estimates were driven by a projected increase in collections from the Sales and Services Tax.
Stronger corporate and individual income taxes also supported the projection, given efforts to make the tax system more progressive with higher-income earners now falling under a new, higher tax bracket, it noted.
Moody’s said revenue slippage, slower growth can thwart the government’s fiscal consolidation plans.
“Under current fiscal considerations, we expect government debt will edge close to 55 per cent of GDP in 2019 and 2020,” it said.
At these levels, debt remains higher than the A-rated median forecast of 37.6 per cent for 2019, emphasising fiscal constraints as a key credit challenge for Malaysia, it added.
- October 16, 2019 @ 9:09pm