Malaysia’s fiscal health set to recover within three years, says finance minister

In a press statement, Lim quoted studies from international credit rating agencies as saying that the country’s economic growth will remain strong. — Picture by Mukhriz Hazim
In a press statement, Lim quoted studies from international credit rating agencies as saying that the country’s economic growth will remain strong. — Picture by Mukhriz Hazim

KUALA LUMPUR, Jan 23 — Malaysia is on the right track to restoring its fiscal position within three years after the damage caused by the 1Malaysia Development Berhad (1MDB) scandal, said Lim Guan Eng.

In a press statement, the finance minister quoted studies from international credit rating agencies such as Moody’s, Fitch Ratings and S&P Global Ratings as saying that the country’s economic growth will remain strong.

According to Lim, Moody’s has stated that the nation’s economic growth will stay stronger than its A-rated peers due to Malaysia’s diversified economy which partially offsets the negative impact of the government’s high debt level.

“This comes after Moody’s on December 7, 2018 decided to maintain the government’s credit ratings at A3 on the back of Malaysia’s commendable growth, deep domestic capital market and solid institutional framework. Moody’s added that a change in credit rating is unlikely in the near term, which would reassure investors and the business community,” Lim said.

In a November 2018 study titled “Malaysia Budget Balances Wider Deficit with Transparency”, Fitch Ratings highlighted that Budget 2019 is sticking to a path of fiscal consolidation over the medium term.

Fitch has reaffirmed Malaysia’s sovereign ratings at A- with a stable outlook.

“Fitch expects that ‘debt ratios will fall in the next few years, provided that GDP growth remains broadly in line with the authorities’ revised outlook for growth of 4.9 per cent for 2019 and 5 per cent in 2020,” said Lim.

S&P Global Ratings similarly commented that “the government’s commitment to gradual fiscal consolidation is credible, and that one-off pressures such as funding of Goods and Services Tax (GST) rebates should abate after 2019” while also maintaining Malaysia’s credit rating at A-.

However, Lim also acknowledged that the rating agencies were concerned with the government’s narrow revenue base due to the replacement of the GST with the Sales and Services Tax (SST).

At the same time, he said the concerns were being addressed as signalled by the increase in direct tax collection last year which rose by RM13.7 billion, or 11.1 per cent year-on-year, to a record high of RM137 billion.

“This proves that, not only is the government on track with its consolidation exercise, the economy continued to grow last year, with corporate tax amounting to 51.1 per cent of direct taxes collected.

“Furthermore, the government collected RM5.4 billion in SST revenue for the last two months of 2018, which is 34 per cent higher than the projected collection of RM4 billion,” he said.

He added that the Tax Reform Committee and Public Finance Committee established last year will assist the government in diversifying its revenue base as well as fiscal consolidation exercise without burdening the public too much.