Moody's sees increased fiscal challenges in Malaysia

Slower GDP growth over next four to six months.

KUALA LUMPUR: Moody's Investors Service sees increased fiscal challenges in Malaysia with the abolishment of the goods and services tax (GST) and introduction of the sales and services tax (SST).

Sovereign Risk Group vice-president and senior analyst Anushka Shah said the GST abolishment in favour of a narrower SST would shrink the government's tax base.

“In general, the government's focus on supporting growth and incomes of poorer households is a factor behind a slower fiscal consolidation path than previously projected,” she said in a media webcast in conjunction with the release of Moody's report titled "Sovereigns Asia Pacific 2019 Outlook".

Shah said should the government prioritise growth and provisions to low-income households further, Malaysia's fiscal strength would weaken.

Meanwhile, the just-released report highlighted that commodity exporting countries would be exposed to a sharper-than-expected growth slowdown in China, whether through reduced demand for their exports or lower commodity prices.

“Australia, Indonesia and Malaysia would mainly be exposed should weaker Chinese demand lower prices globally.

“However, we do not expect slower growth in China to materially affect its demand for commodities and other raw materials, given a likely increase in infrastructure spending as the authorities aim to counter the trade shock,” it said.

Moody's forecast median gross domestic product growth rates of 5.5 per cent and 5.2 per cent in 2019 for Asia-Pacific emerging and frontier market economies respectively, while growth in the advanced economies would likely slow to 2.5 per cent.

It said the slower growth would be in line with global trade, but monetary policy and domestic fundamentals would remain supportive. - Bernama