Malaysian govt's fiscal consolidation to remain intact, says Moody's

The Malaysian government faces a balancing act between its stated commitment to work towards a balanced budget and providing support to an economy that is facing major headwinds to growth, said Vice-President Christian de Guzman.

"The key question regarding the positive outlook on Moody's A3 rating is whether the Malaysian government can muster the political will to sustain the trend of fiscal consolidation that it initiated in 2010," he said in a statement.

"The government has successfully charted these waters before. In the wake of losing its popular mandate in the 2013 elections, fiscal reform actually accelerated, with the government announcing its decision to implement the Goods and Services Tax during the 2014 budget announcement in October 2013."

It also effectively removed fuel subsidies when global oil prices fell last year, hence, Moody's believed Malaysia's fiscal consolidation trend would remain intact this year, he said ahead of the 2016 budget to be unveiled by Prime Minister Datuk Seri Najib Tun Razak later today.

However, given expected pressures on revenue next year due to low oil prices, it is unclear whether the government would cut spending to a sufficient degree to maintain that trend, he noted.