MALAYSIA’S existing rating and outlook should hold steady over in the short- to medium-term post Budget 2021.
While Malaysia’s overall profile may be seen as a “borderline credit”, Maybank Kim Eng opined that the recent additional dividends from Petronas and other government-linked companies are indicative of its financial flexibility.
“Political uncertainties and its impact on policy making can be subjective and will likely take a longer time to ascertain whether this has affected the institutions structurally and weighed on the medium-term growth outlook,” wrote analyst Winson Phoon in a fixed income review in conjunction with Budget 2021.
Malaysia’s current A3/A- rating carries two negative outlooks from Fitch (Apr 9) and S&P (June 26), and one stable outlook from Moody’s (Apr 8).
While official forecasts that show a commitment to fiscal consolidation are commendable in Budget 2021, fiscal profile remains the “Achilles’ heel” of the country’s rating despite strengths in other areas such as still strong medium-term growth prospects, resilient external position and credible monetary settings, according to Phoon.
“If the government’s deficit and growth targets for 2020 and 2021 are met, headline public debt ratio is expected to remain stable at around 61%, while statutory debt ratio is about 4% lower at 57%, still within the upwardly revised debt ceiling of 60% of GDP,” he observed.
“But to stabilise the rating outlook and prevent the two negative outlooks from deteriorating into actual downgrades, more decisive measures to increase government revenue and cut deficit ratios are needed.”
AmBank Research head/chief economist Anthony Dass noted that the current rise in debt is primarily due to the COVID-19 pandemic that resulted in unprecedented public health measures to contain the virus spread.
“With the continued expansionary fiscal policy and higher debt ceiling, it is expected to positively support the economy in 2021,” he projected.
“Assuming the pandemic virus is well managed, the domestic economic growth has room to rise strongly in 2021. If that happens, it will lower both the fiscal and public debt ratios.”
However, the challenge arises if the pandemic goes out of control, thus posing a downside risk on the robust economic growth outlook, according to Dass.
“This would also raise the possibility of a supplementary budget,” he cautioned. “Besides, any risk of rising political tensions or lack of coordination, hence a delay in the speed of economic recovery could pose a threat on the ratings,” he added. – Nov 9, 2020
