Moody's cautions over policy pledges on GST, fuel subsidies

Moody's cautioned the reintroduction of fuel subsidies would also distort market-determined price mechanisms.

KUALA LUMPUR: Moody's Investors Service has cautioned that some of the opposition's campaign promises if implemented without any other adjustments, would be credit negative for Malaysia’s sovereign. 

In its statement issued on Thursday after Pakatan Harapan won enough seats to form the federal government with a simple majority, it raised concerns if the Goods and Services Tax (GST) was removed and the reintroduction of fuel subsidies. 

Moody's said the opposition’s win “marks uncharted territory for Malaysia” because the country has never witnessed a transition of power away from the Barisan Nasional since its independence in 1957.

It pointed out that little is known about the opposition’s full range of economic policies, and its electoral pledges have lacked details that would allow for a full assessment of their budgetary and macroeconomic impact. 

Moody's said if the GST was abolished, without offsetting measures, would increase Malaysia’s reliance on oil-related revenues and, in the near term at least, narrow the government’s revenue base. 

“Another policy pledge, the reintroduction of fuel subsidies, would also distort market-determined price mechanisms, with effects on both the fiscal position and balance of payments,” it said.