KUALA LUMPUR (Oct 21): RAM Rating Services Bhd does not expect much variation in the government’s debt level in 2017 from the current year projection of 56.1%, given the mild fiscal consolidation made in Budget 2017.

“Further[more], we envisage the level of contingent debt to also remain relatively stable as well, given a more modest pace of infrastructure development activity in 2017,” said RAM sovereign ratings head Esther Lai in a statement.

However, Malaysia’s open economy makes it sensitive to external shocks, which can impair its fiscal performance.

“Given that the pace of consolidation has slowed, we project that the government would employ more significant consolidation measures in the near-term, to meet its near-balanced target by 2020,” she said.

Meanwhile, RAM said the fiscal measures in the budget continue to support growth, while still maintaining its focus on fiscal consolidation.

Despite reduced oil-related revenue, Malaysia’s respective global-and ASEAN-scale gA2 and seaAAA sovereign ratings on the respective global and ASEAN-rating scales, remain intact, as the country's gross domestic product (GDP) growth is envisaged to remain resilient at 4.5% in 2017, amid reforms.

RAM added that despite the challenges of meeting its 3.1% deficit target for 2016, the budgeted fiscal deficit of 3% of GDP next year, reaffirms the government’s commitment to consolidation.

Under Budget 2017, RAM said fiscal expenditure will only see a modest of 2.3% (2010-2015 average: 7.4%), as the government intends to balance its growth-supportive policies, with its ongoing fiscal consolidation.

Notably, supplies and services expenditure in 2016 was RM7 billion less than budgeted (which as an expenditure item, the government spent less than budgeted since 2014), while subsidies will decline by as much as RM2 billion in 2017, from the previous budget.