Malaysia’s revised Budget shows determination to cut fiscal deficit: S&P

KUALA LUMPUR: Standard & Poor’s Ratings Services views Malaysia’s revised Budget as an indication of the government’s continued focus on fiscal consolidation.

Its associate director of sovereign ratings, Phua Yee Farn said the sharp decline in oil prices since late 2014 meant that government is unlikely to achieve its initial projected budget deficit of 3% GDP. 

“The government expects to achieve the revised projection of 3.2% of GDP largely through spending cuts,” Phua said.

"However, a prolonged slump in crude oil price could derail fiscal consolidation efforts. 

“The risks are that the contracting oil and gas sector could affect activities in other sectors to bring down overall economic growth. 

“For 2015, it could put at risk the authorities’ revised 2015 GDP forecast of 4.5% to 5.5%, especially if growth of domestic consumption and investment also weaken,” Phua pointed out.

At 1.45pm, US crude oil tumbled US$1.18 to US$47 while Brent shed five sen to US$48.79.

Reuters reported oil markets dipped on Tuesday as China's economic growth for 2014 undershot a government target and hit its weakest annual expansion in 24 years, adding to worries in energy markets already suffering from slowing demand and oversupply, according to Reuters

Earlier Tuesday, Prime Minister Datuk Seri Najib Tun Razak said the new fiscal deficit for 2015 for the revised Budget is at 3.2%, which was slightly higher than the 3% set in the Budget 2015 proposals announced in October last year.

In his special address on the current developments and government’s financial position, he announced specific and proactive measures to align the country’s economy with the recent global economic developments.

He pointed out that over the last six months, global crude oil prices have plunged more than 50%, among others, due to oversupply amid weak demand. 

Najib added if crude oil price remains at US$100 per barrel, the Government will be able to accommodate all the measures announced in Budget 2015 with the fiscal deficit target not exceeding 3% of GDP. 

“However, at the forecast price of US$55 per barrel, there will be a revenue shortfall of RM13.8bil," he said.