Malaysia stepping cautiously towards consolidation in difficult times

November 9, 2020

KUALA LUMPUR -- Malaysia's 2021 budget proposal reflects a first cautious step toward fiscal consolidation. following a deficit estimated at 6% of GDP in 2020, according to ratings agency Standard and Poor's. "Nevertheless, against a tide of economic uncertainty and continued revenue weakness, Malaysia faces enduring pressure on its fiscal and debt settings," S&P says.

"Although we see no material impact on Malaysia's key credit factors currently, fiscal risks are more pronounced and will continue to have a bearing on the negative outlook on the long-term sovereign credit ratings (foreign currency A-/Negative/A-2; local currency A/Negative/A-1)."

S&P says that, although Malaysia's budgetted revenue is projected to rise by 4.2% in 2021 following a deep decline in 2020, it is unlikely to return to its pre-pandemic level until at least 2022.

The Malaysian Government's budget proposal entails a deficit equivalent to 5.4% of GDP in 2021, moderately higher than S&P's current forecast of 5.0%.

"This is still far off from the country's pre-pandemic medium-term fiscal framework, indicating the challenges the Government will face in withdrawing fiscal support for an economy that is likely to have contracted drastically in 2020.

"We believe these challenges will persist for the next two to three years, even as the economy begins to recover from the pandemic." (ATI).