KUALA LUMPUR, Aug 15 — Fitch Ratings believes the government will advance subsidy rationalisation, likely to initially focus on electricity and diesel, in Budget 2024 to be tabled in Parliament on October 13.
The August 12 state elections saw the Pakatan Harapan-Barisan Nasional pact retain power in Selangor, Penang and Negeri Sembilan, while opposition Perikatan Nasional kept control of Kelantan, Terengganu and Kedah.
The rating agency said the unity government led by Prime Minister Datuk Seri Anwar Ibrahim has taken steps to reduce electricity subsidies for non-domestic users and high-voltage consumers, leaving the majority of households unaffected.
“Most food subsidies and the costly fuel subsidies were maintained in 2023. Broad removal of subsidies is expected to be unpopular, particularly as it might exert upward pressure on inflation in the near term,” it said in a statement today.
But Fitch said election outcomes could encourage the government to prioritise other aspects of the Madani agenda, such as those focused on containing living costs, raising wage growth and improving welfare.
“The government has, for example, recently discussed plans to introduce guidelines for wage increases, albeit only on a voluntary and productivity-linked basis,” Fitch said.
The credit rater said even if the authorities move ahead with some subsidy reforms as anticipated, officials might be more generous with the offsetting assistance, as the government has some headroom to accommodate such spending.
It said Malaysia’s revenue grew strongly over the first half of 2023, rising 19.4 per cent year-on-year (y-o-y), while expenditure rose by only 10.6 per cent y-o-y.
“We believe the federal government deficit target of 5 per cent of gross domestic product (GDP) for 2023 should be achievable, even with modest additional spending,” it said.
Fitch said when it affirmed Malaysia’s rating at BBB+/Stable in February, it assumed the authorities would gradually reduce federal government deficits to around 4.5 per cent of GDP in 2023-2025.
“We have since revised this to 4.3 per cent, but our forecast is still wider than the 4.1 per cent target the government laid out for the period in its Medium-Term Fiscal Framework for 2023-2025,” it said.
— Bernama
