- Due to the government’s lower revenue collection and increased stimulus expenditure resulting from the lockdowns, Fitch Solutions has revised Malaysia’s fiscal deficit forecast for 2021 to 7.4% of GDP, up from 6.4 percent earlier.
- “We revised our 2021 fiscal deficit forecast to 7.4% of GDP, wider versus 6.4% previously, mainly to reflect the reduced revenue collection and increased stimulus spending from the government that has resulted from the imposition of lockdowns for a far longer period than we had previously anticipated.
- “Meanwhile, our view since March 2021 for the government to raise the statutory debt limit has played out, with the Cabinet proposing an increase to 65% of GDP from 60%.
- “With fiscal space being even more limited now, we do not expect any more stimulus spending for the remainder of 2021 while 2022 is likely to see a marked decrease in government spending as the new administration under Prime Minister Ismail Sabri Yaakob appears determined to reopen the economy and treat Covid-19 as endemic,” says the ratings agency.
Fitch says depressed revenues due to the lockdown remains the key reason for its revision. Revenues contracted by 6.8% y-o-y and 4.4% y-o-y in Q121 and Q221, respectively, in 2020 and we have revised our outlook for revenue growth of -3.0% in 2021, from 1.0% previously.
“We note that this poor result is despite the fact that Brent oil price has been on a general uptrend since January. Indeed, Brent crude oil prices have risen from USD46.75/bbl at the beginning of 2021 to USD80.26/bbl as of September 28.
“We attribute the revenue weakness to the economy being subjected to some form of lockdown since January 2021, which has severely affected economic activity, especially in the retail and services sector. The situation could improve further in Q421, especially if the government pushes ahead with plans to fully reopen the economy by the end of October and treat Covid-19 as endemic.
“However, any upside to revenue collection would be capped by a slow pace of recovery in economic activity and also under the event that any reopening effort proves unsustainable should the country experience another resurgence in infections.”
