Malaysia's federal budget for 2017 signals further stability in public finances, despite another decline in revenue from the oil & gas sector, Fitch Ratings said in a statement Tuesday.
The country is better placed than many net commodity exporters to cope with the lingering effects of the negative shift in its terms of trade, the rating agency said.
Malaysia's finances have not been immune to the collapse of commodity prices since mid-2014 as the country is the biggest net exporter of petroleum and gas products in south-east Asia.
However, the fall in commodity revenue has not triggered a rating downgrade, Fitch said. The country's sovereign rating remains at 'A-', with stable outlook since mid-2015.
Oil and gas revenue is estimated to account for just 14.6 percent of total revenue this year, down from 30 percent just two years earlier. Dividends from the state-owned oil company Petronas are also forecast to drop to MYR 13 billion next year from MYR 16 billion this year.
Fitch expects the economy to grow around 4 percent this year and next, thus exceeding the median of its rating peers. This reasonably strong GDP growth has helped to stabilize federal government deficit and debt levels, the agency said. Further, the introduction of a new Goods & Services Tax in April 2015 has also provided support to non-oil revenue.
The rating agency said it is unlikely that the government deficit target of 3 percent of GDP for 2017 will be missed by enough to push public debt above the self-imposed ceiling of 55 percent of GDP.
Meanwhile, Fitch said that the impact of the 1 Malaysia Development Berhad (1MDB) affair on government policy making, political stability, and fiscal finances has been limited so far, but remains a source of uncertainty. The unresolved issues also illustrate how governance standards remain a weakness in Malaysia's credit profile, the agency added.
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