Malaysia's fiscal consolidation trend will remain intact this year, says Moody’s

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KUALA LUMPUR (Oct 23): Malaysia's fiscal consolidation trend will remain intact this year due to the implementation of the Goods and Services Tax and the reduction of energy subsidies, according to Moodys’ Investors Service.

In a pre-budget commentary on Malaysia, Moody’s said the key question regarding the positive outlook on Moody's A3 rating is whether Malaysia's government can muster the political will to sustain the trend of fiscal consolidation that it initiated in 2010.

The rating agency said the administration faces a balancing act between its stated commitment to work towards a balanced budget and providing support to an economy that is facing major headwinds to growth.

“The government has successfully charted these waters before.

“In the wake of losing its popular mandate in the 2013 elections, fiscal reform actually accelerated, with the government announcing its decision to implement the goods and services tax during the 2014 budget announcement in October 2013.

“It also effectively removed fuel subsidies when global oil prices fell last year.

Moody’s however said given expected pressures on revenues next year due to low oil prices, it is unclear whether the government will cut spending to a sufficient degree to maintain that trend.