Malaysia Sovereign Outlook Remains Positive - Moody's

By Sharifah Pirdaus Syed Ali and Harizah Hanim Mohamed KUALA LUMPUR, Aug 28 (Bernama) -- Moody's Investors Service said Malaysia's sovereign outlook remained positive as what had been reaffirmed in January this year on the back of fiscal consolidation trend remains intact. Its Vice President-Senior Analyst Sovereign Risk Group, Christian de Guzman, said Malaysia's 'A3' rating with positive outlook was predicated on the progress of the fiscal consolidation and on the back of the government's revised budget which incorporated oil price assumption. "We saw deficit consolidation remained intact with the expenditure cut by getting rid of fuel subsidies," he told a media roundtable session Thursday. However, he said, despite being rated stable for more than 10 years now, Malaysia has lost its relative ground against other ASEAN countries as they were catching and being upgraded recently. In the middle of 2000, Indonesia was rated a low 'B3' and the Philippines a 'B1' following the Asian financial crisis but both had then moved up to the investment grade of 'Baa3' stable and 'Baa2' stable. "With the current global economic headwinds like China's slowing economy, the impending Federal Reserves' rate increase and lower commodity prices, Malaysia is not excluded from facing the impact," he added. Deteriorating growth outlook in most emerging markets triggered by China's slow economy, lower commodity prices and capital flow movement, were manifested in Malaysia's lower reserves and weaker ringgit (Malaysia's currency) that have feedback loop to economic confidence, he said. de Guzman said the weaknesses of the currencies and lower reserves clearly were among the deterioration points in sovereign credit profile. But in Malaysia's context, the lower reserves, although not as strong as before, remain adequate. As for the ringgit depreciation, it has less impact on the country's sovereign credit profile than it does in other countries. "Among the reasons are that the profile of government debt is ringgit-denominated while the external debt, the composition is also largely in ringgit," he said. Moving forward, Malaysia's positive outlook is still resting on fiscal consolidation and whether or not the government has the willingness and appetite to rationalise its expenditure from further pressure on its revenue. On the exacerbating political risk, he noted it was hard to disassociate the risk with external pressure involving foreign investors, but the risk is divorced from policy risk, he said. de Guzman said despite all the headwinds, Malaysia has been the fastest-growing economy in the region although the growth is slowing. --BERNAMA