SINGAPORE (Standard & Poor's) Oct. 28, 2013-Standard & Poor's Ratings Services said today that the Malaysian government's proposed 2014 budget has no impact on the sovereign ratings and outlook on Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; axAAA/axA-1+).
The budget targets a deficit of 3.5% of GDP for 2014, down from 4% in 2013. This is in line with our expectations of a gradual fiscal consolidation over the medium term.
The government has scheduled the much-anticipated Goods and Services Tax to take effect in April 2015 at 6%. The tax allows the government to diversify its revenue base. But we expect the revenue impact of the new tax to be neutral for at least the first few years because of other revenue-reducing measures announced in the budget.
In our view, Malaysia's slow fiscal consolidation stemmed from its relatively weak revenue structure and an inability to reduce high subsidies. Budget 2014 and 2015 could begin to reduce concerns arising from these issues.