It said the recently tabled Budget 2024 focusses on improving the country’s fiscal deficit without jeopardising economic growth in the near term.

“While we would have liked to see bolder reforms, the baby steps to rein in government expenditures are understandable, given the coalescence of downside risks on both domestic and global fronts,” it said in a statement today.

The rating agency said the government remains committed to fiscal consolidation, with the fiscal deficit expected to reach the targeted 3%-3.5% by end-2025.

Meanwhile, RAM Ratings said the government’s commitment to reduce the fiscal deficit is augmented by several revenue-raising measures; the most visible being the raising of the service tax rate to 8% from the current 6%, with some exemptions.

The higher tax collection is also complemented by the baby steps in the rationalisation of subsidies, including the removal of chicken and egg subsidies, the lifting of electricity subsidies for heavy electricity users and the targeting of diesel subsidies.

“These are estimated to generate savings of circa RM11.5 billion per year. Subsequently, the subsidies bill is projected to fall to approximately RM32 billion under Budget 2024, from around RM41 billion in 2023,” it said.

Despite the attempt at narrowing the fiscal deficit, the credit rating agency said Budget 2024 remains an expansionary budget – a prudent strategy, given the weak economic prospects next year.

It noted that at 4.5% of gross domestic product, the development expenditure allocation for 2024 is also higher than the average of 3.4% between 2015 and 2019.

“The elevated allocation is critical to drive and sustain many of the moonshot targets of the New Industrial Master Plan 2030, the New Energy Transition Roadmap and the nation’s net-zero fulfilment.

“All said, we are heartened that this government is cognisant of the financial discipline and the motivations needed to strike a good balance between fiscal sustainability and economic growth,” it added.