Moody's so-so on 2016 Budget
Malaysia's 2016 Budget kept the government's credit-positive fiscal consolidation trend intact, while further reducing its reliance on oil revenue, said Moody's Investors Service.
However, the Budget did little to deliver structural reform that could provide longer-lasting support to the government's finances and the economy, it said in the report '2016 Budget Sustains Credit-Positive Fiscal Consolidation; Reform, Economic Support are Limited' released today.
Moody's also noted that the slowing in the pace of fiscal consolidation casts some doubt on the government's ability to achieve its target of a balanced budget by 2020, which would require a steeper reduction in the deficit in subsequent years.
“Still, increasing reliance on Goods and Services Tax (GST) receipts over oil-related income to drive revenue growth enhances the sustainability of the government's fiscal tightening.
"The Budget provided some limited support to economic growth," it added.
While domestic demand growth should be relatively resilient in 2016, support for economic output will likely be muted until domestic political uncertainty abates, it said.
The Budget, which targeted a deficit equal to 3.1 per cent of Gross Domestic Product (GDP), could modestly encourage consumption by buffering lower-income households against higher living costs, Moody's said.
Strong political headwinds
The rating agency, in affirming the government bond and issuer ratings of the government of Malaysia at A3 with a positive outlook, said the macroeconomic assumptions in the budget are realistic.
"The budget outcome hinges on real economic growth of four per cent to five percent in 2016, in line with our expectations of 4.5 percent GDP growth in that year,” it said.
The credit rating agency assumed that global crude oil prices will remain low at US$48 per barrel in 2016, below Moody's assumptions of US$53.
Moody's said overall the Budget signalled the government's commitment to keeping its fiscal deficit under control, despite the persistence of low commodity prices, slowing economic growth and strong political headwinds.
The measures outlined in the 2016 Budget, Moody's said, should modestly encourage private consumption, and public development spending could help to draw funding from the domestic private sector and raise foreign direct investment.
- Bernama
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