FROM THE EDGE Fitch affirms Malaysia at ‘A-’ with stable outlook

by **Cals** Thu 25 Feb 2016, 01:37

FROM THE EDGE

[size=28]Fitch affirms Malaysia at ‘A-’ with stable outlook

By Meena Lakshana / The Edge Financial Daily | February 24, 2016 : 10:21 AM MYT

This article first appeared in The Edge Financial Daily, on February 24, 2016.

KUALA LUMPUR: Fitch Ratings has affirmed Malaysia’s long-term foreign- and local-currency issuer default ratings (IDRs) at “A-” and “A” respectively, with stable outlooks.

The international rating agency said the stable outlooks reflect its assessment that upside and downside risks to the ratings are currently broadly balanced.

However, it warned that factors that could lead to a negative rating action are a sustained deterioration in fiscal discipline and the public finances, leading to a sharper rise in government debt ratios than Fitch currently expects.

Other factors include further weakening of Malaysia’s balance of payments that strains domestic economic and/or financial stability and a deterioration in political stability or governance that lead to a weakening of credibility of policymaking institutions.

Fitch also pointed out that Malaysia’s governance is a weakness relative to other sovereigns in the “A” rating range.

“Malaysian politics and governance standards have come under the spotlight due to a range of domestic and international investigations into the state-owned investment company 1Malaysia Development Bhd,” it said in a statement yesterday.

“However, the political heat generated by these issues has not so far had a discernible impact on policymaking. For example, the government has pressed ahead with controversial structural fiscal reforms, including a goods and services tax and reduction in fuel subsidies,” it added.

The issue ratings on Malaysia’s senior unsecured local-currency bonds were also affirmed at “A”. The country ceiling is affirmed at “A” and the short-term foreign-currency IDR at “F2”.

Fitch noted that Malaysia has remained committed to its fiscal consolidation path, adopting a budget recalibration in January that cut 0.6% of gross domestic product (GDP) from spending to match a decline in oil revenues and other smaller revenue adjustments.

Fitch views the macroeconomic assumptions in the recalibrated budget as broadly realistic, which are expecting the budgeted oil price to average between US$30 (RM126) and US$35 per barrel this year and GDP growth for 2016 to be in a range of 4% to 4.5%. For Fitch, it expects real GDP growth of about 4% in 2016 and 2017, below the five-year average of 5%.

Fitch also expects the ratio of federal government debt to GDP to rise modestly to 2017, but to remain below the government’s 55% policy ceiling. Contingent liabilities in the form of explicit federal government guarantees have stabilised at around 15% of GDP since 2013.

The agency also expects the current account to remain in modest surplus out to 2017.

Fitch also noted that Malaysia’s banking system indicator of “bbb” is in line with that of Poland (A-/Stable) or Israel (A/Stable), although weaker than those of the Czech Republic or Chile (both A+/Stable).

“The Malaysian private sector is relatively highly indebted. Bank credit to the private sector was the third-highest among Fitch-rated emerging markets at end-2015, at 121% of GDP behind only China and Thailand,” said the agency.

The share of government debt denominated in ringgit is very high (over 95%). The Malaysian sovereign has no debt restructuring history.
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