THE RM15 bil Malaysian Economic and Rakyat Protection Assistance Package (PERMAI) in itself, does not significantly alter Fitch Ratings’ views on the country’s sovereign credit profile.
However, recent developments highlight ongoing risks to the country’s economic and fiscal outlook posed by the progression of the COVID-19 pandemic and uncertainties surrounding the vaccine drive to counter it, according to the credit rating agency.
Although the medium-term outlook for public finances remains a key rating sensitivity for Malaysia, Fitch said Malaysia has fiscal headroom at its current rating of ‘BBB+’ with Stable Outlook following its downgrade of the rating in December 2020 from ‘A-’.
The downgrade was driven by a weakening of several key credit metrics amid the pandemic shock – in particular relating to the sovereign’s fiscal burden – which was already high relative to peers going into the health crisis.
As in many countries, Fitch noted that the main risk to Malaysia’s growth outlook – both in 2021 and 2022 – is the timeline and efficacy of the vaccination programme.
“We assume that the authorities will start vaccinating in March, and inoculate enough of the population by early 2022 that they will be able to relax the vast majority of pandemic-related restrictions,” the credit rating agency pointed out in a highlight on how Malaysia’s pandemic relief will pressure public finances.
“The risks around the pandemic add to existing uncertainties about the medium-term direction of policy and governance, in Fitch’s view.”
Commenting on the declaration of a state of emergency in Malaysia, Fitch said such development may compound the impact of persistent political instability in recent years which contributed to its rating downgrade in December.
“Political volatility weakens prospects for improvements in governance and may have a dampening effect on private investment growth which has declined since mid-2018 relative to previous years,” observed the credit rating agency.
“Nonetheless, it has not impeded a swift government response to the pandemic, including the passage of core legislation to implement relief measures prior to the introduction of the state of emergency.” – Jan 27, 2021
