Highlight Najib hints at a tight budget

Highlight Najib hints at a tight budget
Business & Markets 2013
Written by Fatin Rasyiqah Mustaza & Shalini Kumar of theedgemalaysia.com
Friday, 02 August 2013 08:49

KUALA LUMPUR: The prime minister has hinted the government will take measures to rein in its growing budget deficit in the wake of Fitch Ratings issuing a “negative” outlook on the country’s sovereign credit risk.

Datuk Seri Najib Razak said the concerns raised by Fitch Ratings in its ratings outlook released on Tuesday will be addressed in Budget 2014.

“It’s a concern we share as a government and we will seek to address those concerns,” he said during the brand unveiling of the Islamic Finance Marketplace at Bank Negara Malaysia (BNM).

Although Najib did not mention details on how the government plans to tackle the concerns raised in the ratings report, he said his administration is looking at various existing policy options as a short-term solution.

“The government is committed to strengthening our macro and fiscal position and we have to put together a fiscal committee to address some of the challenges, which will be revealed shortly in the forthcoming budget,” said Najib.

On Tuesday, Fitch Ratings said it had revised Malaysia’s outlook to “negative” from “stable”. It considers the prospects for budgetary reforms and fiscal consolidation to address weaknesses in the public finances have worsened following the government’s weak showing in the May general election. The Najib-led Barisan Nasional won the election but with fewer seats in Parliament.

He said the Fitch Ratings assessment was just a revision of the country’s outlook.

“There are two things on the rating. One is that they reaffirmed our rating. Second, it is just a revision on our outlook … it depends on the moves the government makes.”

In its rationale for revising Malaysia’s rating outlook to “negative” from “stable”, Fitch had re-affirmed the long-term foreign and local currency issuer default ratings (IDR) at A- and A respectively.

The rating agency re-affirmed the short-term foreign currency IDR at F2 and the country ceiling at A.

The agency cited public finances as the country’s key rating weakness as the federal debt had increased to 53.3% of GDP as at end-2012 from 51.6% the previous year. It also said the government’s budget deficit widened to 4.7% of GDP in 2012 from 3.8% a year earlier.

After a revision in outlook, a country is normally given 18 to 24 months to rectify the shortcomings in its public finances.

BNM governor Tan Sri Dr Zeti Akhtar Aziz said the central bank will set out to increase the country’s resilience and enhance its potential to sustain economic growth.

“Malaysia still has time to do it, but now of course it is more urgent because the global environment has become more challenging,” said Zeti when asked if fiscal consolidation measures should be taken immediately instead of waiting for Budget 2014.

Domestic demand is set to continue to anchor economic growth in the country, driven mainly by the private sector and supported by the public sector. However, global growth is expected to continue to be modest as the major advanced economies are still affected by ongoing structural adjustments and policy uncertainty.

Yesterday, Najib introduced the Islamic finance marketplace and the new brand identity — Malaysia: World’s Islamic Finance Marketplace.

He invited the global financial community to collaborate with and mutually benefit from Malaysia’s Islamic finance marketplace, which has a comprehensive regulatory, supervisory, syariah and legal framework.

“We hope to see more cross-border multi-currency transactions. The task now lies with the players and drivers of our marketplace to build and drive the industry and increase connectivity for the advancement of the global Islamic finance market,” said Najib in his speech.

“As the major economies calibrate their policies, we could face increased volatility in the financial markets. Given this challenging environment, BNM has put forward a number of proposals to strengthen our economic resilience and to accelerate our economic transformation agenda,” Najib said.

Malaysia has consistently emerged as one of the leading destinations in Islamic finance, particularly in the Islamic banking, sukuk and Islamic equities markets.


This article first appeared in The Edge Financial Daily, on August 02, 2013.