[ad_1]
KUALA LUMPUR, Dec 4 – Fitch Ratings downgraded Malaysia’s long-term foreign currency issuer default rating (IDR) to ‘BBB +’ from ‘A-‘ with a stable outlook amid the impact of the Covid crisis -19 which has not only weakened Malaysia’s key credit metrics, but also those of other countries.
Fitch acknowledged that the authorities responded quickly to the crisis, with material relief measures for the affected people and companies.
“The government has ensured the approval of basic legislation to implement aid measures, including the 2021 Budget,” he said today in a statement.
The rating agency said that measures to contain the internal spread of the coronavirus, combined with weak investment and low tourism revenue due to the pandemic, have reduced economic activity, as it has in many countries around the world.
Fitch expects Gross Domestic Product (GDP) to contract 6.1 percent in 2020 before rebounding 6.7 percent in 2021 due to base effects, a revival of infrastructure projects, and continued recovery. of exports of manufactured products and raw materials.
“These forecasts remain subject to uncertainty and depend on the short-term evolution of the pandemic, as illustrated by an increase in the number of daily cases since the beginning of October,” he said.
He noted that the government hopes to vaccinate 30 percent of the population next year, based on agreements so far with vaccine producers.
“We forecast 4.6 percent growth in 2022, with the expectation that Malaysia’s diversified economy will deliver strong growth over the medium term,” the agency said.
Fitch expects the fiscal deficit to remain above pre-pandemic levels, given continued supportive measures and political pressure for higher spending.
The 2021 budget targets a deficit of 5.4 percent of GDP, from an estimated 6 percent in 2020, and an average deficit of 4.5 percent of GDP from 2021 to 2023.
According to Fitch, the goals are achievable.
“We expect government revenues to remain low at 19.1% of GDP in 2020 (median of ‘BBB’: 31.4%) and to depend on oil production, which the government expects to generate 22% of total revenue this year, including a dividend from national oil company Petroliam Nasional Bhd (Petronas).
“The low and concentrated income base, exacerbated by the elimination of the GST in 2018, has in recent years led the government to resort to dividends from government-linked companies, pending the introduction of new and more sustainable, which Fitch understands are being considered for the medium term, ”he said.
Fitch expects general government debt to increase to 76 percent of GDP in 2020 from 65.2 percent of GDP in 2019. The debt figures used by Fitch include officially reported “committed government guarantees” on loans, which are managed by the government budget, and 1 Malaysia Development Bhd net debt (1MDB), equivalent in September 2020 to 12.6% and 1.3% of GDP, respectively.
“On this basis, the debt burden is significantly higher than the medians of 59.2% and 52.7% for rating categories ‘A’ and ‘BBB’, respectively. Malaysia’s debt is close to 400 percent of income, about three times the average of its peers.
“We expect the debt-to-GDP ratio to remain stable overall after the pandemic recedes, given the likely reduction in the fiscal deficit and low debt service costs, illustrated by a 10-year average yield of 2.7%. in November, “he said.
Fitch noted that the new government continues to implement some measures to improve transparency launched under the previous coalition, and corruption trials of former officials have continued.
However, in his view, the slim two-seat parliamentary majority in government implies persistent uncertainty about future policies.
After a significant improvement in 2019, Malaysia’s World Bank governance score weakened slightly in 2020, at the 64th percentile, and is closer to the 58th percentile ‘BBB’ median than the 76th percentile ‘A’ median .
“Deteriorating governance and continuing political uncertainty could dampen investor confidence, limiting economic growth,” Fitch said.
Malaysia continues to run current account surpluses, which Fitch expects to reduce to 3.4 percent of GDP in 2021 from 4.2 percent in 2020, as import compression due to the pandemic recedes and public spending on U.S. development revives. infrastructure.
The agency said the share of government debt denominated in foreign currency is also low, just two percent of total debt.
Furthermore, the government remains relatively dependent on foreign financing, as foreign holdings of domestic debt account for around 24 percent of the total.
“This is down from a peak of 34 percent in 2016, and reflects a deep and developed domestic bond market,” he said.
However, he said uncertainty remains about Malaysia’s continued listing in a key bond index, and that delisting in 2021 could lead to capital outflows.
Fitch said Bank Negara Malaysia’s (BNM) policy response has supported the economic environment during the pandemic shock and included cuts in its policy rate this year by a cumulative 125 basis points (bp) to 1.75 percent. .
“Fitch believes that the BNM has room for further easing and expects monetary policy to continue supporting economic activity with another 25 bp rate cut in 2021.
“We expect inflation to be positive again, at 1.5% in 2021, as the impact of the pandemic recedes,” he said.
In their view, the banking sector maintains sufficient loss-absorbing capital buffers, given the system’s Common Equity Tier 1 ratio of 14.6 percent in October, and remains liquid with a liquidity coverage ratio of 153 percent.
“Moderate pressure on earnings is likely to erode some of these buffers, although we expect major banks to remain profitable in the near term,” Fitch said.
While a six-month blanket moratorium on debt repayment for retail and small and medium-sized business (SME) borrowers that began in April 2020 has provided borrowers relief, Fitch said it may also mask quality stress. of assets, with the system’s non-performing loan (NPL) falling to a record low of 1.4 percent in the third quarter of 2020 from 1.6 percent in the first quarter.
Fitch said an extension of more targeted relief for individuals and SMEs affected by the pandemic until at least mid-2021 should keep delinquency rates in check, but will continue to partially cloud the visibility of asset quality. – Bernama
