Malaysia insulated from external shocks for now, says Moody’s

by **Cals** Tue 01 Apr 2014, 01:30

Business & Markets 2014

Written by Jonathan Gan of theedgemalaysia.com

Monday, 31 March 2014 15:13

KUALA LUMPUR (Mar 31): Malaysia’s strong external position and large pool of domestic savings limit vulnerability to external financial shocks, according to Moody’s Sovereign Monitor report.

The credit rating agency nevertheless said that net portfolio inflows into Malaysia during 2010-2012 surpassed the accumulated total of the previous decade, representing vulnerability to a sudden stop or reversal of these flows.

Christian de Guzman, a Moody’s vice president and senior analyst in the report said that Malaysia’s favourable debt structure and minimal currency risk continues to mitigate its high public indebtedness.

“Malaysia’s strong external position and large pool of domestic savings limit vulnerability to external financial shocks. Capital market depth, foreign exchange reserves of $133.1 billion (RM435.5 billion) and a favourable debt structure guard against a disruptive reversal of non-residents’ holdings of government debt.”

“The risk of consequent domestic interest rate volatility ... is mitigated by ample onshore liquidity conditions that reflect a large pool of domestic savings equivalent to around 34% of GDP,” said the report.

The report however added that Malaysia’s fiscal deficits were wider than its A-rated peers.

It further cautioned that the government’s over reliance on oil and gas receipts may render it vulnerable to energy demands and commodity prices.

“Malaysia’s fiscal deficits continue to be wider than A-rated peers, while the debt burden at 54.8% of GDP as of 2013 somewhat constrains policy space.

“The reliance of government revenue on oil and gas receipts renders Malaysia vulnerable to adverse changes in emerging market energy demand and commodity prices. Direct petroleum-related receipts equate to nearly one-third of total federal government revenue,” the report said.

The report pointed out that Asean member’s sovereign creditworthiness remained largely unscathed in the wake of the global financial crisis.

This was attributed to Asean’s focus on accelerating economic growth, social progress and cultural development in the region, protection of regional peace and security, and promotion of active collaboration, cooperation and mutual assistance on economic, technical and administrative affairs.

The Sovereign Monitor Report was released ahead of the Asean Finance Minister’s Summit in Myanmar on April 5.