Kuala lumpur: The expectation of a downward trend in Malaysia’s general government debt and a Gross Domestic Product (GDP) that aligns more closely with peer medians could positively impact the nation’s ‘BBB+’ sovereign rating. This potential improvement is driven by a robust consolidation strategy and enhanced growth prospects.

According to BERNAMA News Agency, Fitch Ratings noted that while government debt is gradually decreasing, it remains above the median for Fitch-rated ‘BBB’ category sovereigns, projected at 58 percent in 2025. In a recent note, Kathleen Chen, an associate director and sovereigns analyst at Fitch Ratings, highlighted that the Malaysian government’s latest budget reiterates its commitment to gradual fiscal consolidation. The budget aims for a deficit of 3.5 percent of GDP in 2026, slightly below Fitch’s previous forecast of 3.6 percent.

Chen further explained that the budget emphasizes a medium-term goal of reducing the deficit to three percent of GDP, though no specific timeline has been outlined. Within the medium-term fiscal framework, the government anticipates an average deficit of 3.2 percent of GDP from 2026 to 2028, suggesting a deficit of around three percent by 2028 if the current pace of consolidation is maintained.

Additionally, Chen mentioned that the government is advancing the rationalization of subsidies, with projected annual savings of RM15.5 billion, equivalent to approximately 0.8 percent of Malaysia’s 2025 GDP. A significant portion of these savings will be allocated to social welfare programs. Total expenditure is expected to increase by 1.7 percent, with the recently announced targeting of the RON95 petrol subsidy anticipated to yield smaller savings compared to the targeted diesel subsidy.