By Rupa Damodaran
KUALA LUMPUR: Rating agency Standard & Poor’s considers Malaysia’s rating as still stable for the next one to two years, but has raised concerns about the build-up in government guarantees.
Analyst Andrew Wood said while the net indebtedness is stable right now and the economy is performing very well, contingent liabilities could weigh on the rating.
He was referring to government guarantee and also non-financial public enterprises (NFPE) indebtedness following the recent strategies to push capital spending off budget.
“As far as we see, they are contingent liabilities to government. Even if they don’t crystallise in the near future, this can weigh on the debt assessment within the rating.
“We need to see if that continues and how it may affect total indebtedness of the public factor.”
S&P Global Ratings affirmed Malaysia 'A-' a few months ago.
Responding to questions on Malaysia during a webcast on the Asia-Pacific credit outlook, Wood said the political story is important as the rating agency will be watching how the results could feed through to policy making in the future.
With 2018 being an election year, more grassroot spending measures can be expected after which there will be consolidation in spending in the second half.
On the upcoming general election which will be held by August, he expects the Barisan Nasional coalition to be the favourite to win.
Meanwhile, S&P chief economist Paul Gruenwald said the region has been enjoying a strengthening export picture.
“We have not heard much of Tiger Economies in recent years but Korea, Taiwan, Singapore, Malaysia and Thailand have been experiencing robust real electrical and electronics (E&E) exports, lifting growth in all these economies.”
The International Monetary Fund is also forecasting global trade growth which will be higher than Gross Domestic Product (GDP) growth. This has not been seen for a while and will benefit these economies.
On the US Federal Reserve Fund’s moves towards normalising it monetary policy stance, Gruenwald expects to see a lag response from many of the central banks in the region, given it is a`dollar’ region.
“But these economies here will also watch the combination of growth, real effective exchange rate and any sort of interest rate differential.”
The Fed has indicated a hike this month and two more next year and S&P does not expect to see volatility.
“For a dollar region this means – in order to get volatility and potential capital outflow due to repricing of risks – some surprise has to happen.”