Moody’s: BN’s victory preserves status quo of Petronas

Business & Markets 2013
Written by Cynthia Blemin of theedgemalaysia.com
Friday, 10 May 2013 10:30
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KUALA LUMPUR: Barisan Nasional’s (BN) victory has not only assured
the continuation of the country’s pro-growth policy, but also helped
preserve the status quo of government-related issuers (GRIs) including
Petroliam Nasional Bhd (Petronas), according to Moody’s.
In a report on the just concluded general election, Moody’s said the
ruling coalition’s victory helps preserve the status quo of the GRIs as a
Pakatan Rakyat win may have seen the abolishment of monopolies
which threatens various GRIs’ prevailing business models.
Other GRIs that could have been affected include TENAGA NASIONAL
BHD [], Axiata Group Bhd and TELEKOM MALAYSIA BHD [].
“With Petronas in particular, the threat of an increased royalty payout
and the redistribution of oil profit in the form of lower petrol prices would
likely have resulted in a material deterioration in its credit profile,” said
Moody’s in a report released yesterday.
Petronas’ financial health and dominance in the domestic oil and gas
sector is important to Malaysia’s sovereign rating given the state oil
company’s significant contribution to federal government revenues.
Petroleum-related income has typically exceeded 30% of total federal
government revenue.
Moody’s said although BN’s win assures the continuation of Malaysia’s
pro-growth policy, it is sceptical of BN’s populist fiscal agenda which
clouds the prospects for fiscal reform. The long-term sustainability of government finances is contingent on fiscal reform,
where the prospects are not so clear given the underlying features of BN’s victory.
BN retained its majority, winning 133 of the 222 seats in the national legislature. Pakatan however, increased its
representation to 89 seats from 82 in the 2008 election and won the popular vote as well.
Moody’s said BN needs to shore up its electoral legitimacy as it may influence the pace of fiscal consolidation, adding that
certain populist spending measures under the approved budget and made during the election campaign will add to the burden
of near-term government expenditure.
Moody’s said the prospect of the implementation of a goods and services tax to diversify and increase the sources of
government revenue may be as politically difficult as before.
“But subsidy reform may be more tenable. Prime Minister Datuk Seri Najib Razak has publicly expressed his desire to reduce
government spending on subsidies, while intending to use existing direct cash transfer programmes to help the poor adjust to
higher prices,” it added.
In the near term, Moody’s expects the government to continue conducting a fiscal policy in line with prevailing rules, such as
requiring current expenditure not to exceed current revenue, as well as the 55% debt ceiling for direct government obligations.
“With growth policies intact, the government is set to continue, if not accelerate, the development initiatives under its
Economic Transformation Programme (ETP),” Moody’s said, especially with the ETP being particularly successful in reviving
private investment.