RAM Ratings reaffirms Malaysia's sovereign rating

by **Cals** Wed 16 Dec 2015, 01:39

RAM Ratings reaffirms Malaysia's sovereign rating

By Sangeetha Amarthalingam / theedgemarkets.com | December 15, 2015 : 6:37 PM MYT

KUALA LUMPUR (Dec 15): RAM Ratings has reaffirmed Malaysia's global and Asean-scale sovereign at gA2 and seaAAA respectively, primarily based on its still-resilient and diversified economy.

This is despite the deterioration of the country's external-resilience parameters amid a sustained decline in commodity prices and its reduced foreign exchange reserves, said RAM Ratings.

(seaAAA — A sovereign rated [size=16]AAA has a superior capacity to meet its financial obligations. This is the highest long-term ASCR (Asean Sovereign Credit Rating) assigned by RAM Ratings.)

(gA2 — A sovereign rated A has an adequate capacity to meet its financial obligations. This sovereign is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories.)

In a statement today, RAM Ratings said Malaysia's ongoing fiscal consolidation and a robust banking system bolstered its view.

"While falling oil prices and a weaker ringgit have strained Malaysia's fundamentals, its diversified export base and fiscal consolidation are anticipated to see it through the current turbulence," said its sovereign ratings head Esther Lai.

On the other hand, RAM Ratings added that elevated government debts and high household debt levels relative to comparable economies weighed down the ratings.

"Amid still very volatile external conditions, Malaysia's ratings could be revised downwards if its fiscal position deteriorates as a result of rising public debt or contingent liabilities.

"Another credit-negative indicator is a persistent current-account deficit. Similarly, the rating could face downward pressures if there are significant deviations in the country's economic or fiscal reforms," RAM Ratings said.

It pointed out that Malaysia's economy is projected to expand 4.4% next year from 5% this year, compared to Thailand and Indonesia, expected to grow 3.2% and 5.1% respectively, according to International Monetary Fund (IMF).

The fiscal measures, announced in Budget 2016, comprising the expansion of direct cash transfers, favourable adjustments to income tax relief and a higher minimum wage, will aid consumption growth amid the rise of various goods and services.

It added that non-commodity export revenue, particularly from electrical and electronic goods (33.5% of total exports in 2014), had recovered in view of the weaker ringgit.

This will allow the country's current account to remain in surplus, projected at a respective 2.5% and 1.0% of gross domestic product (GDP) in 2015 and 2016.

In addition, the government's fiscal position has improved with deficit expected to shrink to 3.2% of GDP in 2015 with a further improvement to 3.1% anticipated in 2016 from 6.7% in 2009.

"Our projection takes into account an expected RM8.1 billion (equivalent to 0.7% of GDP) decline in petroleum-related revenues in 2016," RAM Ratings said.

Meanwhile, the company said Malaysia's debt burden remained higher than that of most countries with a similar level of development and is expected to amount to 51.9% of GDP this year.

"While elevated, the debt structure remains favourable, as most of the borrowings are denominated in local currency, which is supported by a high domestic savings rate, and are generally long-tenured," it added.

However, the country's elevated household debt levels at 88.1% of GDP at the end of August this year added to Malaysia's vulnerability.

Similarly, the government's contingent liabilities from outstanding government-guaranteed debt, which add up to a "sizeable" 15.1% of GDP as at the end of the second quarter in 2015, also presented a risk to country's fiscal position.

"However, we derive comfort from the knowledge that the largest issuers of government-guaranteed debt have long maturity schedules, some of these entities being able to support themselves without significant direct fiscal backing," RAM Ratings said.

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