Fitch affirms Malaysia rating at A-minus with stable outlook
Friday, 19 Jul 2019
by p. aruna
PETALING JAYA: Fitch Ratings has affirmed Malaysia’s long-term foreign-currency issuer default rating at ‘A-’ with a stable outlook.
The international rating agency said the country’s ratings balanced strong and broad-based medium-term growth with a diversified export base, against high public debt and some lagging structural factors, such as weak governance indicators relative to peers.
It said the latter, however, could see gradual improvements with ongoing government efforts to enhance transparency and address high-profile corruption cases.
Fitch, in a statement, said it expects economic growth to slightly decelerate in the rest of this year as a result of a worsening external environment, but to hold up well at 4.4% in 2019 and 4.5% in 2020.
“Malaysia is a small open economy that is integrated into Asian supply chains, but it also has a well-diversified export base, which helps cushion the impact from a potential fall in demand in specific sectors.
“Global trade tensions are likely to have a detrimental effect on Malaysia’s economy, as with many other countries, but this may be partially offset by near-term mitigating factors, such as trade diversion, in particular towards the electronics sector,” it said.
Private consumption, it said, is likely to hold up, while public investment is expected to pick up over the next few years, following the successful renegotiation of several large infrastructure projects.
The rating agency said the outlook for private investment, however, was uncertain.
While foreign direct investment inflows have been strong over the past few quarters, it expects that investors will continue to face both external trade and domestic political uncertainty.
“The Pakatan Harapan coalition took office in May 2018 with very high expectations.
“It has set a number of policy initiatives in motion, but holds only a small majority in Parliament and has seen its previously high public approval rates fall significantly,” it said.
It noted that a weak fiscal position relative to peers also weighs on the credit profile.
The government’s move to repeal the goods and services tax (GST) and replace it with the sales and service tax (SST), it said, had undermined fiscal consolidation.
The Malaysian government aims to offset the revenue loss through measures to strengthen compliance, the introduction of a sugar tax and an increased stamp duty.
“Political pressures and growth headwinds could motivate the government to increase its current spending, but we believe that if it does so, it would seek additional revenues or asset sales to contain the associated rise in the deficit and public debt,” it said.
On governance, the rating agency said progress in implementing reforms through stronger checks and balances, and greater transparency and accountability would strengthen Malaysia’s business environment and credit profile
Read more at https://www.thestar.com.my/business/business-news/2019/07/19/fitch-affirms-malaysia-rating-at-aminus-with-stable-outlook/#WWSpRx9BRsVkZJqg.99
