KUALA LUMPUR: Malaysia’s 2017 federal budget points to further stability in public finances, despite another decline in revenue from the oil & gas sector, says Fitch Ratings.
The ratings agency says Malaysia is better placed than many net commodity exporters to cope with the lingering effects of the negative shift in its terms of trade.
The dramatic fall in commodity prices since mid-2014 has been the single most important factor behind the wave of 31 emerging-market sovereign rating downgrades made by Fitch in 2015-2016. Two-thirds of these downgraded sovereigns were heavily dependent on revenue from commodity exports. Malaysia is the largest net exporter of petroleum and natural gas products in south-east Asia, and its finances have not been immune to the effects of the collapse in prices.
The government estimates that oil & gas revenue will account for just 14.6% of total revenue in 2016, down from 30% just two years earlier. Dividends from the state-owned oil company, Petronas, are forecast to fall to MYR13bn (USD3.1bn) in 2017 from MYR16bn in 2016 and MYR29bn in 2014.
However, the fall in commodity revenue has not triggered a rating downgrade. The sovereign has kept its ‘A-‘ rating, which has been on Stable Outlook since mid-2015. GDP growth has remained a credit strength despite the negative terms-of-trade shock.
Fitch expects the economy to grow by around 4.0% in 2016 and 2017, which is at the bottom of the government’s 4.0%-5.0% target range for 2017 but above the median of Malaysia’s rating peers.
Capital expenditure has fallen in the oil & gas sector, particularly at Petronas, but the impact on GDP growth has been partly offset by increases in consumer spending. Household spending continues to be supported by a hike in public-sector salaries that took effect 1 July 2016, and will receive another boost from a 26% increase in transfers to lower-income households included in the 2017 budget.
