High debt could persist longer than expected, says Moody’s

(FMT) – The 2019 budget indicates Malaysia’s high debt levels are likely to persist for longer than expected, as deficits are expected to remain above 3% of the gross domestic product (GDP) until 2020, says Moody’s Investors Service.

“By Moody’s calculations, government debt will edge up to 51.1% of GDP in 2019 from an estimated 50.6% in 2018.

“At these levels, debt remains higher than the A-rated median forecast of 40.9% for 2018, emphasising fiscal constraints as a key credit challenge,” the international rating agency said in a statement today.

Moody’s added that in the near term, it is likely that any further reduction in the deficit will largely rest on securing revenue from non-tax sources, including higher dividends from state-owned enterprises, and/or by continuing to cut spending.

With the replacement of the goods and services tax with the sales and services tax, it said, petroleum-related revenue had increased to about 31% of total revenue from less than 16% in 2017, making government income susceptible to volatility in oil prices.

“A number of measures, both implemented and planned, reflect the government’s drive to increase the transparency and accountability of the public accounts.

“However, disclosure of the size of ‘committed government guarantees’, that is guaranteed to entities that require regular financial support, could add up to 10.5% of GDP to future government debt, given the now greater likelihood that some of these entities’ debt payments will be assumed by the government,” it said.

Budget 2019, announced by Finance Minister Lim Guan Eng on Nov 2, targets a fiscal deficit of 3.4% of GDP for 2019, slightly narrower than the latest official estimates of 3.7% for 2018.

However, projections for 2018 are above the original budgeted target of 2.8% of GDP.