Moody's: Subsidy cuts are positive signs of fiscal reform

Business & Markets 2013
Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com
Tuesday, 03 December 2013 18:45
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KUALA LUMPUR (Dec 3): Moody’s Investors Service said today that fiscal
measures such as the electricity and fuel subsidy cuts and the introduction of
the goods and services tax (GST) are the main factors that drove its outlook
change for Malaysia.
“The announcements that fiscal reforms are actually coming led us to find a
positive outlook based on the premise that these fiscal reforms will be
successfully implemented,” said Christian de Guzman, vice president of
Moody’s Investors Service.
He added that the implementation of these fiscal reforms will result in a smaller
budget deficit and a stabilisation in the debt burden.
Last month, Moody’s changed its outlook on Malaysia’s credit rating to ‘positive’
from ‘stable’, following improved prospects for fiscal consolidation and reforms,
as well as the country’s resilient growth, benign inflation rate and current
account surplus.
The ‘positive’ outlook is defined by Moody’s as a one in three chance that
Malaysia may see its credit rating upgraded in the next 12 to 18 months.
Moody’s also pointed out that Malaysia has outperformed other A-rated
countries in terms of real GDP growth. Malaysia has relatively low inflation and
a good balance of payments despite a reduction in its current account surplus
over the last 2 years.
“A direct positive consequence of the improving trend in the credit quality of
Malaysia is the strengthened capacity of the government to provide support to
the bank in times of stress,” said Moody’s in a press release.
However, Moody’s warned that high household debt and significant rise in house prices may pose a threat to the banking system and may
affect overall economic conditions.