KUALA LUMPUR, June 24 (Xinhua) -- Fitch Solutions has on Friday revised its fiscal deficit forecast for Malaysia this year to 6.5 percent of gross domestic product (GDP), from 6.3 percent previously.
The research house said in a note that the slight downward revision reflected a net negative balance between two opposing forces affecting the fiscal situation in Malaysia -- higher petroleum-related revenues amid significantly higher oil prices and higher government spending in order to keep inflation at bay.
"While the government has announced plans to consolidate public finances over the coming months, including a more targeted approach to fuel and food subsidies and a possible reversion back to the Goods and Services Tax (GST) scheme from the current Sales and Services Tax (SST), we still see downside risks to our fiscal forecasts," it said.
Fitch Solutions has revised up its forecast for Malaysia's revenue to a total of 256 billion ringgit (58 billion U.S. dollars, 15.2 percent of GDP), from 234 billion ringgit (53 billion U.S. dollars, 14 percent of GDP) previously, mainly due to higher oil prices.
Its oil and gas team continues to forecast Brent crude prices to average 100 U.S. dollars per barrel, which is 49.3 percent higher than the government's assumption of 67.00 U.S. dollars per barrel used to formulate budget 2022.
"While upwardly revised, our forecast has incorporated the marginally lower tax collection from the slightly weaker economic outlook as compared to when we previously analysed Malaysia's fiscal situation -- we have revised our real GDP growth forecast for Malaysia to 5.2 percent this year, compared to 5.6 percent previously," said the research house.
Fitch Solutions has also revised up its expenditure forecast for Malaysia this year to 364 billion ringgit (82.64 billion U.S. dollars), from 334 billion ringgit (75.83 billion U.S. dollars) previously, in order to reflect the additional spending by the government to maintain fuel and food subsidies amid rising prices, in order to maintain the purchasing power of its citizens.
"While the amount of additional spending has been significant thus far, we believe that these outlays will be reduced in the second half of 2022," it said.
While the Malaysian government's debt had fallen slightly to 63 percent of GDP in the first quarter, from 63.4 percent of GDP in the fourth quarter of 2021, the research house continues to expect Malaysia's overall debt load to rise over the course of 2022, especially in light of the wider fiscal deficit that it now expects in 2022.
According to Fitch Solutions, Malaysia's government debt burden is not exceptionally high relative to peers at a similar level of economic development, and the government is unlikely to exceed its debt-to-GDP ceiling of 65 percent in 2022.
"However, we note that the government's lack of a concrete medium-term fiscal consolidation plan to bring its budget deficit down to pre-pandemic levels poses downside risk to debt sustainability," it said. (1 Ringgit equals 0.23 U.S. dollar)