Big task for MOF to convince rating agencies that all is well with M’sian economy

THE Finance Ministry (MOF) has to put in more effort in its engagement with the three international rating agencies this time around considering the latest revision of the 2021 fiscal deficit target to -6% of gross domestic product (GDP) from -5.4% previously.

The projection of an additional 0.6% contraction takes into account the RM35 bil PERMAI and PEMERKASA economic stimulus packages which were doled out on Jan 18 and March 17 respectively.

Malaysia’s next sovereign credit rating is slated for June by S&P Global Ratings which previously downgraded the country’s rating to “negative”. The other two rating agencies are Fitch Ratings and Moody’s Investors Service.

Recall that on Dec 4 last year, Fitch downgraded Malaysia’s long-term foreign-currency issuer default rating (IDR) to ‘BBB+’ from ‘A-‘ (with a “stable” outlook).

On Jan 28, Moody’s affirmed the Malaysian Government’s local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3 while keeping its outlook at “stable”.

“The Government needs to convince the rating agencies that it remains committed towards its fiscal consolidation over the medium-term through both revenue enhancement initiatives and expenditure rationalisation as well as public debt containment when the pandemic is over,” Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told FocusM.

Lee Heng Guie

“The immediate priority now is to legislate the Fiscal Responsibility Act to kick start the responsible fiscal management.”

Since 2020 till March this year, the Government has rolled out RM340 bil (or 24% of GDP) from seven economic recovery packages in addition to the approved RM322.5 bil Budget 2021 to revitalise the economy from the unprecedented COVID-19 pandemic crisis. 

Total fiscal injection amounted to RM72.6 bil for the period of 2020 to 17 March 2021.

“This is a big amount of money which if spent effectively and accountably to achieve the intended outcomes, can achieve ‘real’ fundamental and quality growth as well as sustainable pace going into 2022,” opined Lee.

“Pumping growth through cash handouts is not fiscally sustainable as all these booster measures will eventually wear out.  The loan repayment assistance and the Employees Provident Fund (EPF) withdrawal schemes cannot be perpetual.”

On the bright side, the stimulus packages have helped to provide temporary cash flow relief to more than 10 million lower and B40 households as well individuals (via cash assistance/payment; targeted loan repayment assistance and the EPF’s employees withdrawal schemes, among others).

Moreover, the wage subsidy and employment retention programmes have saved 2.7 million jobs and supported 800,000 small medium enterprises (SMEs) and micro businesses via various soft loan credit and financial facilities, grant, targeted loan repayment assistance.

“At the end of the day, it is imperative that more jobs must be created as well as the upskilling and reskilling of workforce to improve their employability,” Lee pointed out.

“The Government needs to revive strong flows of both domestic and foreign investment to provide employment opportunities.” – March 24, 2021

 

Photo credit: TheMole

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