KUALA LUMPUR: Malaysia’s sovereign ratings, which have been on Fitch Ratings’ negative outlook since July 2013, have been upgraded to stable, thanks to the country’s improved financial position.
Previously, Malaysia was previously widely expected to have its credit rating downgraded to BBB+ by Fitch in its half-yearly review, but the firm yesterday maintained Malaysia’s long-term foreign currency issuer default rating (IDR) at A- and local currency at A, with outlook revised to stable from negative.
Fitch had suggested in March that Malaysia’s credit rating was “more than 50 per cent likely” to be downgraded as its trade balance worsened and a state investment company struggled to meet its debt obligations.
The Finance Ministry reportedly met a group of Fitch executives early this week to convince them of Malaysia’s economic resilience.
Sovereign credit ratings give investors insight into the level of risk associated with investing in a particular country.
Obtaining a good sovereign credit rating is usually essential for developing nations to access funding in international bond markets and attract foreign direct investments.
Fitch yesterday said Malaysia’s fiscal finances had improved since last year, with the general government deficit falling from 4.6 per cent of gross domestic product (GDP) in 2013 to 3.8 per cent of GDP last year, 2014 and general government debt/GDP declining from 54.7 per cent at the end of 2013 to 53.9 per cent at the end of last year. 2014.
Fitch viewed progress on the Goods and Services Tax (GST) and fuel subsidy reform as supportive of the fiscal finances.
“A further narrowing of the deficit is forecast this year in 2015 despite lower oil prices.
“Nevertheless, as against the ‘A’ median, Malaysia’s fiscal position continues to remain weak.
“General government debt as a share of GDP at the end of last year was 53.9 per cent, which is still above the ‘A’ median of 47.2 per cent.”
The depth of Malaysia’s local capital markets supported the sovereign’s domestic financing needs, Fitch said.
It also said while the share of non-resident holdings of government securities was high and a weakness in the sovereign’s debt profile, local agencies, such as the Employees Provident Fund, (EPF) could provide funding to support to the sovereign in the event of a sell-off by non-residents.