Fuel subsidy cut won't change Fitch's 'negative' outlook

The cut in fuel subsidy starting today, is not enough to change Fitch Rating's negative outlook on the Malaysian economy.

It said that while it is a step in the right direction, the subsidy cuts are not enough to grow support for public finances.

This is because the RM1.1 billion saved from fuel subsidy in 2013 and RM3 billion in 2014, was also already factored in the rating agency's projections for the Malaysian economy from 2013 to 2015.

"The upshot is that the corrective fiscal measures, announced yesterday, are too small to alter the Negative Outlook on Malaysia's 'A-' sovereign rating.

"Sustained reform implementation, if accompanied by structural measures to broaden the revenue base, could make a difference to the sovereign's credit profile.

"But such an intensification of reforms that can also withstand potential growth headwinds, is not on the cards at present," it said in a statement released late today.

Fitch added that efforts to improve public finances in the next 12 months will also not be easy as the ruling coalition's political position has weakened coming out of the May general election.

"This means the government is likely to continue to encounter difficulties in implementing far-reaching, and much delayed, revenue-enhancing reforms such as the Goods & Services Tax (GST)," it said.

In for tough times

It also noted that the plunging prices of key export commodities will also put a damper on the country's growth and government tax receipts.

It said such conditions would make it tough for the government to achieve its medium-term deficit target of three percent of gross domestic product by 2015.

"We estimate that Malaysia's current account surplus will fall - sharply - to three percent of the gross domestic product this year after averaging 11 percent over 2009 to 2012," he said.

The current account measures the difference between import and export, plus net income and net transfers from abroad.

However, it said, Malaysia could weather global market volatility by prioritising investments into projects that are not import-intensive.