Things to get worse before it gets better!
Rating agencies unlikely to downgrade Malaysia’s credit rating because budget deficit is still on an improving trend.
(Free Malaysia Today) – Netherlands-based ABN AMRO Bank NV, in a research note, expects things to get worse in 2015 before they get better, but oil and capital flows could become more ringgit-positive later in the year.
The government is expected to undertake measures to ensure that the country’s fiscal deficit will not worsen in 2015 due to the fall in crude oil prices, notes the national news agency, Bernama, in a year-ender. “Under 2015 Budget, the government said it planned to reduce fiscal deficit to three per cent of the gross domestic product (GDP) next year.”
In its research note, RHB Research said the government has a few options to help mitigate the fall in crude oil prices.
It said one of them was to request Petroliam Nasional Bhd (Petronas) to pay a slightly higher dividend of RM20.3 billion (based on a 30 per cent drop in crude oil prices), to help it tide over the difficult period.
Petronas has warned of a lower dividend next year as its net profit for the third quarter ended September 30, 2014 fell 12.3 per cent to RM15 billion on weaker oil prices, liquefied natural gas sales and unfavourable foreign exchange.
RHB Research said the government’s revenue will, however, get a lift when the Goods and Services Tax’s (GST) impact would be felt more significantly in 2016.
It said the government has estimated the GST revenue for 2015 of RM23.2 billion. This, however, will be offset by revenue foregone from the abolishment of the sales and services tax of RM13.8 billion, it said.
RHB Research said the government could miss its fiscal deficit target next year if Petronas did not pay a higher dividend. “The government will have to work within its means by using contingent money and cut its development expenditure by RM3 billion.”
“However, the deficit could still improve to between 3.1 per cent and 3.2 per cent in 2015, based on a 30 per cent drop in oil revenue, from 3.5 per cent of GDP estimated for 2014,” it said.
It said if the government was to miss its budget deficit target; the rating agencies were unlikely to downgrade Malaysia’s credit rating. “This is because the budget deficit is still on an improving trend,” it said.
