Sep 05, 2013

    Malaysia's fiscal steps fail to move Fitch

    MALAYSIA'S measures to lower fiscal subsidies and limit import- intensive investment, which were announced on Monday, did not impress Fitch Ratings enough for it to change its perception of the country.

    Fitch had downgraded Malaysia's sovereign-credit-rating outlook in July to "negative" from "stable", saying that it reflected the rating house's assessment that prospects for budgetary reform to address weaknesses in public finances had worsened since the government's weak showing in May's general election.

    The rating agency said in a statement on Tuesday that the corrective fiscal measures announced were "too small" to alter the negative outlook.

    On Monday, the government announced that the price of RON95 petrol and diesel had been increased by 20 sen (one Singapore cent), translating into RM3.3 billion of savings annually.

    This is seen as the first step towards the rationalisation of subsidies by the government in a bid to reduce the country's persistent fiscal deficit.

    "Sustained reform implementation, if accompanied by structural measures to broaden the revenue base, could make a difference to the sovereign's credit profile," said Fitch.

    "But such an intensification of reforms that can also withstand potential growth headwinds is not on the cards at present."

    Maybank Investment Bank Research pointed out that welfare programmes - like BR1M, or the 1Malaysia People's Aid - could possibly dilute the fiscal- deficit impact and eat up fuel- subsidy savings.

    To ease the burden on low-income and vulnerable groups, Prime Minister Najib Razak said the quantum for the BR1M would be increased next year.

    Malaysia aims to reduce its budget deficit to 4 per cent of gross domestic product this year and 3 per cent in 2015. Last year, it stood at 4.5 per cent of GDP.