Moody’s on Malaysia: Balanced budget 2020 unlikely

First, bad news from another international rating agency, Moody’s Investor Service. Its senior analyst Christian de Guzman said Malaysia is unlikely to be able to balance our budget by 2020. In other words, Malaysia should still be having a budget deficit. Hopefully, it’s pretty low by then. The reasons contributing to this include short-term challenges from a slowing economy as well as a catalyst that will boost the long-term growth. Fortunately, it is still rating Malaysia at A3 (investment grade) and a stable outlook rating. Unless something drastic happens, should there be any changes, the rating  should turn into negative outlook first.
In 2009, the budget deficit was 6.7 percent. By the end of 2016, the government is targeting 3.1 percent and 3 percent by end of 2017. (Of course, if the world economy is better, then the lowering of the deficit can be slightly faster). The subsidy cuts as well as the Goods and Services Tax has helped too. Guzman also said that despite the measures to improve tax collection and compliance, the ongoing deceleration in economic growth does not support the budget projection of a combined 8.4% increase in corporate and personal income taxes, while higher debt servicing costs have combined with falling revenue to weaken debt affordability.
So, what do I expect? I do not think people are looking too much into fundamentals. Perhaps many read too much Facebook comments. Perhaps it is just not clear enough. I think the ringgit would continue to be affected by external factors instead of our own results. Yes, especially from that world currency which everyone is expecting another rate up before end of the year. I do hope they will quickly make a decision if it is going up. Please stop all these uncertainties. Based on Q3 GDP results, our neighbour down south has started to show some weaknesses which may affect all other countries in the region too. Oh yeah, 4 more years would be the end of 2020. Assuming 3.1 percent deficit this year, I still think we would be near to the balanced budget goal or even reach the goal earlier should the world economy recovers earlier. Subsidies are still being rationalised and GDP growth is still continuing, as per predicted by IMF and many other analysts. Happy believing.
written on 27 Oct 2016
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