RAM Ratings Expects Malaysia's Sovereign Rating To Remain Intact

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KUALA LUMPUR, May 15 (Bernama) – RAM Rating Services Bhd, expects Malaysia’s gA2 sovereign rating to remain intact, following Pakatan Harapan’s (PH) victory in the recent 14th General Election.

The rating agency said some economic and fiscal policy changes would create uncertainties in the near term, as details are scant at this juncture, but the strong emphasis by the new leadership on governance and institutional reforms is a long-term positive for the nation’s fundamentals.

“RAM Ratings view Malaysia’s sound macroeconomic fundamentals as a key driver of sustainable growth momentum and a central factor underpinning its rating going forward,” it added.

It said a number of PH’s 10 promises for the first 100 days was seen as very supportive of private consumption activities and, as such, provides some potential upside to the country’s current private consumption growth projection of 7.2 per cent for 2018.

The rating agency said the realisation of the consumption boost would depend heavily on how fast current policies can be changed and new ones administered, such as the Goods and Services Tax (GST) and re-introduction of the Sales and Services Tax (SST).

“The form this (SST) will take is another aspect to consider in terms of its scope in respect of government revenue and consumption boost,” it said.

It also said inflation could come in lower than the earlier projection of 2.3 per cent this year on account of the narrower indirect tax reach and reintroduction of fuel subsidies, albeit targeted.

“The extent of the downward pressure on prices hinges once again on the policy details such as the extent of subsidy support and at what level prices will be capped,” it added.

RAM Rating said there could be some potential transitory downside risks during the next 100 days leading up to PH’s formation of a new government and as the ironing out of implementation details of major campaign promises take place.

“As such, RAM maintains its current gross domestic product (GDP) forecast for 2018 at 5.2 per cent,” it said.

It said the agency is monitoring developments, especially from the newly established Council of Eminent Persons, which is expected to shape most of the economic reform and maintain financial stability in this stage of transition.

RAM Ratings said much of the downside risk to GDP growth would fall on investment momentum which is seen to be two-fold -- from a slowdown in infrastructure investment implementation rates on the back of the government’s review of contracts with foreign participation and from market uncertainties which will dampen capacity building activities in the near term.

“This will, in our view, put some downward pressure on our current private investment projection of eight per cent for this year, although we are still monitoring how expedient this process will be to get things back on track,” it added.

It said the review and potential re-opening of government contracts to another round of open tenders could also have an extended dampening effect on projects which are already underway.

RAM Ratings said any volatility in the bond market is mitigated by the deep domestic institutional investor base and expects corporate bond issuance to slow looking ahead, especially from the quasi-government space as the government re-assesses its contingent liabilities.

Nevertheless, it maintained gross corporate bond issuance projection of RM 90-100 billion this year on account of the better than expected corporate bond issuance of RM 42.1 billion as at end-April.

However, it said some of PH’s election pledges could have an impact on certain corporate sectors, some of which are major bond issuers, adding, the review of large infrastructure projects and abolition of tolls on expressways under government concessions could impact some construction players alongside toll road projects.

RAM Rating will release a preliminary analysis on the affected sectors as more details become available.