Can Malaysia narrow the budget deficit?

  • Business
  • Monday, 12 Sep 2005

KUALA LUMPUR, Malaysia (AP) - Credit rating company Moody's Investors Service said Monday that Malaysia's move to extend fuel subsidies will undermine efforts to trim its budget deficit and may weaken the economy in the long run. 

But Second Finance Minister Nor Mohamed Yakcop told reporters that he is "very confident'' the government is able to narrow its budget deficit this year to 3.8 percent of gross domestic product, from 4.3 percent last year. 

"We will maintain the 3.8 percent (budget deficit estimate),'' he told reporters. 

The government last week yielded to public concerns about rising inflation and said it would keep retail fuel prices flat for the rest of the year even if global oil prices rise further. 

Moody's Vice President and senior credit officer Steven Hess said that extending fuel subsidies is "not good macroeconomic policy'' and will hurt Malaysia's efforts for a rapid return to a balanced budget. 

Hess said Moody's will stick to its current A3 sovereign rating - four rungs above "junk'' status - for Malaysia for now but added that "over the longer term, competitiveness remains a concern.'' - AP 

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