No Rating Impact On 2016 Budget Recalibration - S&P's

SINGAPORE, Jan 29 (Bernama) -- The sovereign credit ratings and outlook on Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; and, axAAA/axA-1+) are not affected following the recalibration of Budget 2016, says Standard & Poor's Ratings Services (S&P's). The rating agency said Malaysia's recalibrated 2016 Budget indicated that the government will not depart from its fiscal consolidation plans. Malaysian Prime Minister Najib Razak on Thursday announced 11 plans under the Budget 2016 recalibration to counter the current challenging economy. "The revised budget's deficit remains 3.1 per cent of Gross Domestic Product for 2016. When the government formulated the initial budget last October, it assumed oil price of US$48 per barrel," it said. With crude oil price continuing its slump, the authorities had recalibrated the budget, assuming US$30 to US$35 while S&P's assumption of average oil price this year is US$40. S&P's said the projected lower fiscal revenues from weaker energy prices will be offset by reduced development spending of about US$1.20 billion (RM5 billion). "In our view, Malaysia's proactive budget cutbacks demonstrate its fiscal flexibility. It has gradually lowered its deficits since 2010, and the government's latest target is in line with our expectation of a gradual fiscal consolidation over the medium term. "The budget does not propose any significant reduction in subsidies. In our view, further significant subsidy reforms will be crucial to help Malaysia reach its goal of balancing its fiscal position by 2020," it said. S&P's said Malaysia's previously slow fiscal consolidation stemmed from its relatively weak revenue structure and an inability to reduce high subsidies. "We view the country's fiscal initiatives, such as the implementation of its Goods and Services Tax and removal of petroleum subsidies, to have reduced the stress. "That said, we believe Malaysia's economic growth prospects remain the most important factor driving its fiscal consolidation. Although the revised budget has measures to boost consumption, we do not envisage them to have a significant impact on overall economic growth," it said. S&P's said it has determined, based solely on the developments described herein, that no rating actions were currently warranted. Only a rating committee may determine a rating action and, as these developments were not viewed as material to the ratings, neither they nor this report was reviewed by a rating committee, it said. --BERNAMA