PETALING JAYA: Finance Minister Lim Guan Eng said Malaysia is on track to restore its financial health within three years after it had been damaged by the 1Malaysia Development Bhd scandal.
In a statement, Lim highlighted that the major international credit rating agencies – Moody’s, Fitch Ratings and S&P Global Ratings – had all affirmed the country’s credit ratings in their recent reports.
Lim also noted that these rating agencies had admittedly expressed concerns about the government’s narrowing revenue base, following the removal of the goods and services tax (GST) that was replaced with the sales and service tax (SST).
“The concerns are being addressed, as can be seen by the encouraging increase in direct tax collection last year which rose by RM13.7bil or 11.1% year-on-year to a record high of RM137bil.
“This proves that not only is the government on track with its consolidation exercise, but the economy also continued to grow last year, with corporate tax amounting to 51.1% of direct taxes collected,” he said.
“Furthermore, the government collected RM5.4bil in SST revenue for the last two months of 2018, which is 34% higher than the projected collection of RM4bil,” he added in the statement.
He also said that improved tax collection strategies and continued economic growth would ensure that the country readily meets its fiscal consolidation objectives.
“On top of that, the Tax Reform Committee and Public Finance Committee established last year would help the government diversify its revenue base and aid the fiscal consolidation exercise without placing too great a burden on the people or hurting economic growth,” Lim added.
His statement also highlighted that Moody’s stated in its January 2019 annual update that the country’s economic growth would stay stronger than its A-rated peers, and that Malaysia’s strong diversified economy was partially offsetting the negative impact of the government’s high debt level.
He also noted that Moody’s on Dec 7 last year had decided to maintain the country’s credit ratings at A3 on the back of Malaysia’s commendable growth, deep domestic capital market and solid institutional framework.
“Moody’s added that a change in credit rating was unlikely in the near term, which would reassure investors and the business community,” it said.
Fitch Ratings, which reaffirmed Malaysia’s sovereign ratings at ‘A-’ with a stable outlook, said it expects that “debt ratios would fall in the next few years, provided that gross domestic product growth remains broadly in line with the authorities’ revised outlook for growth of 4.9% for 2019 and 5% in 2020.”
Lim noted that Fitch Ratings also said that the government’s institutional reforms aimed to promote competency, accountability and transparency mentioned in Budget 2019 were credit-positive for Malaysia.
The steps that have been announced include a migration towards accrual from cash accounting by 2021, the introduction of a Fiscal Responsibility Act by 2021 and Government Procurement Act by 2019, the application of zero-based budgeting for the 2019 budget and open tender and zero tolerance for corruption and non-compliance of budgeting procedure.
Meanwhile, he said that S&P Global Ratings also commented that “the government’s commitment to gradual fiscal consolidation is credible, and that one-off pressures such as funding of GST rebates should abate after 2019.”
He noted that S&P Global Ratings has maintained Malaysia’s credit rating at A-.
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