Malaysia's proposed fiscal reforms a positive step, says Moody's

by **Cals** Mon 28 Oct 2013, 19:35

Business & Markets 2013

Written by Bernama

Monday, 28 October 2013 18:35

SINGAPORE (Oct 28): Moody's Investors Service says that Malaysia's Budget 2014, with its call for fiscal consolidation and reform of the country's subsidy system, will, if fully implemented, be credit positive for the government's finances.

At the same time, the structural fiscal weaknesses will remain, and execution risks present challenges to the effectiveness of the government's fiscal policy strategy, the rating agency said in a statement.

Specifically, it said the budget calls for a reduction in the fiscal deficit to 3.5 per cent of the gross domestic product (GDP) in 2014 — lower than the government's estimate of 4.0 per cent in 2013.

"Yet, the budget deficit will remain wider than it was in the years immediately before the 2008 global financial crisis," it added.

Moody's said the expenditure restraint will be the primary driver of the planned reduction in the deficit in 2014, rather than growth in revenue.

It said, notably, development expenditure is set to fall for a second consecutive year, a development which will negatively impact GDP growth in 2014.

A key feature of the budget is the 15.6 per cent cut in the total subsidy bill in 2014, from 2013.

However, subsidy expenditure in the budget will remain elevated when compared with the historical level, prevalent before the commodity price boom and the global financial crisis in 2008.

Moody's noted that the cutback in subsidy-spending is driven in part by the September increase of 20 sen per litre in diesel and low-grade petrol prices.

However, the rating agency said this increase alone would not likely be enough to achieve the intended reduction in fuel subsidies, in 2014.

Prime Minister Datuk Seri Najib Tun Razak unveiled the Budget 2014 last Friday.