(File pix) Moody’s Investors Service says in the near term, it is likely that any further reduction in the deficit will largely rest on securing revenue from non-tax sources, including higher dividends from state-owned enterprises, and/or by continuing to cut spending.

KUALA LUMPUR: The 2019 Budget indicates Malaysia’s high debt levels are likely to persist for longer than expected, as deficits are likely to remain above three per cent of the gross domestic product (GDP) until 2020, said Moody’s Investors Service.

“By Moody’s calculations, government debt will edge up to 51.1 per cent of GDP in 2019 from an estimated 50.6 per cent in 2018.

“At these levels, debt remains higher than the A-rated median forecast of 40.9 per cent for 2018, emphasising fiscal constraints as a key credit challenge,” the international rating agency said in a statement today.

Moody’s also said, in the near term, it is likely that any further reduction in the deficit will largely rest on securing revenue from non-tax sources, including higher dividends from state-owned enterprises, and/or by continuing to cut spending.

Moreover, with the replacement of the Goods and Services Tax with Sales and Services Tax, petroleum-related revenue has increased to about 31 per cent of total revenue from less than 16 per cent in 2017, making government income susceptible to oil price volatility, it said.

“A number of measures, both implemented and planned, reflect the government’s drive to increase the transparency and accountability of the public accounts.

“However, disclosure of the size of “committed government guarantees“, that is guaranteed to entities that require regular financial support, could add up to 10.5 per cent of GDP to future government debt, given the now greater likelihood that some of these entities’ debt payments will be assumed by the government,” Moody’s added.

The 2019 Budget, announced by Finance Minister Lim Guan Eng on Nov 2, targets a fiscal deficit of 3.4 per cent of GDP for 2019, slightly narrower than the latest official estimates of 3.7 per cent for 2018.

However, projections for 2018 are above original budgeted targets of 2.8 per cent of GDP.

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