KUALA LUMPUR, June 29 — S&P Global Ratings’ move to revise its credit rating outlook on Malaysia is expected as it was triggered by justifiable policy actions amidst the unprecedented economic slump, said Kenanga Investment Bank Bhd (Kenanga).
On June 26, S&P reaffirmed Malaysia’s A- credit rating, but revised its outlook from “stable” to “negative”.
In a research note today, Kenanga said the downshift was attributable to heightened downside risks to the country’s fiscal position amid the Covid-19 pandemic and elevated political uncertainty.
“The move was not surprising, as Fitch had led the way earlier in April, with Moody’s expected to follow suit.
“Other major ASEAN economies had also faced downgrades in their credit rating outlook, as extraordinary fiscal policy measures were deployed to rehabilitate the economy which has been hamstrung by the health crisis,” it said.
S&P projected a growth contraction of 2.0 per cent, with fiscal deficit widening to 6.0 per cent of gross domestic product (GDP) this year.
The ratings agency said the deep contraction reflected the pandemic’s adverse impact on trade, investment and private consumption.
However, Kenanga said several actions are crucial to ensure a sustained or an improved rating going forward, starting with political stability.
“The domestic political tussle has been cited by S&P as a factor that worsens policy predictability and continuity.
“We concur with this view, as constant change in policy priorities disrupts concrete progress in structural reform and fiscal consolidation initiatives,” it said.
A timely resumption of fiscal consolidation, coupled with steadfast revenue diversification efforts would also be positive for the sovereign ratings decision, said Kenanga.
“Although sizeable fiscal expenditures are justified in the current environment, it is important to improve on policy targeting and execution to ensure that all announced measures are properly and efficiently channelled to those in need,” it added.
— Bernama
