STANDARD and Poor’s (S&P) said yesterday it will maintain Malaysia’s sovereign rating for the next 20 months, expressing concern about the country’s public debt position and fiscal performance.
Malaysia, rated A-/Stable/A-2 in terms of its sovereign foreign currency ratings for the past seven years, has strengths in terms of external liquidity and international investment position, and monetary flexibility.
However, effectiveness, economic structure and growth, fiscal flexibility and government debt burden were rated “neutral”.
S&P said Malaysia needs to reduce its fiscal deficit to gross domestic product (GDP) ratio and control its public debt ratio. Its national debt ratio stands at 54 per cent to the GDP.
“It needs to improve its medium-term growth,” said Tan Kim Eng, S&P’s Rating Services senior director and analytical manager.
S&P has projected the Malaysian economy to grow by an annualised 5.2 per cent this year, underpinned by “reasonably good” exports.
It also felt that the efficiency in the growth of the economy could be expanded with the subsidy rationalisation programme, which is expected to contribute another two percentage points of growth.
Bank Negara Malaysia raised the Overnight Policy Rate by 25 basis points last week and one of its intentions is to curb overheating in the property market and also to check on household debt level.
“Household debt is one of the issues we’re paying attention to (in Malaysia) and in the region.
“If it increases further, it could place Malaysia in a vulnerable state in the international environment.”
In Malaysia’ s case, Tan said Bank Negara has indicated its cautious approach with the loan to variation debt and is considering variation to the current loan-to-earnings ratio.
“We see this issue as controllable in Malaysia and do not see risk with this problem.
Its Asia-Pacific Sovereign Rating trends for the middle of the year discussed rising risks from domestic politics and territorial disputes, especially those involving China and countries like Philippines, Vietnam and Japan.
A full-scale military conflict remains unlikely, however, as there is a common interest in maintaining economic stability.
In the case of China, the ratings could improve if the reforms lead to more reliance on macro-economic management tools and more flexible exchange rate.
Ratings in Japan could be lowered if the government does not deliver the third arrow of its programme.
