Fitch Rating On Budget 2014

The measures announced under 2014 Budget will be enough to reduce the risk of a ratings downgrade and have also put in place conditions to broaden the tax base and cut structural subsidies.

These two fiscal issues are the focus of credit agency Fitch’s concerns. Admittedly, details are absent and the GST (goods and services tax) is time-lined for 2015, but the broad thrust of the budget appears to be in the right direction.

Overall, Prime Minister Datuk Seri Najib Razak has moved to pledge fiscal reforms (GST, subsidy cuts) and introduced property measures to curb speculation and contain household leverage... this should reduce the risk of a ratings downgrade near-term.

On the oil and gas front, `no news as good news’ especially since the government did not ask for increased dividends from Petronas to assist in the balancing of its budget or to keep within the country’s official debt-to-GDP limit.

The 2014 Budget is largely negative on property (because of the real property gains tax, the RM1 million threshold and abolition of the developer interest bearing scheme) and on construction (as projects benefit more small players, and slower property sales).

Banks may also be impacted from slower property transactions.

Although the real property gains tax (RPGT) increase was anticipated, industry observers did not expect the condition for foreign property buyers, where foreigners now (Oct 2013) can only purchase property valued from RM1 million onwards compared with RM500,000 previously.

The banking sector had a 40.3 per cent ex-posure to property loans as at end-August 2013, of which residential property loans accounted for 27.9 per cent, while non-residential property loans accounted for 12.4 per cent.

The construction sector found it disappointing with no big ticket items.

The highly anticipated Klang Valley MRT Line 2, which is worth RM25 billion to RM30 billion, is nowhere to be seen in this budget. Other big projects that have yet to be announced include the Singapore-KL high-speed railway (RM30 billion), West Coast Highway (RM5 billion) and Tun Razak Exchange (RM26 billion).