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KUALA LUMPUR, January 27 – Like many other countries, Malaysia’s growth and recovery prospects depend on the implementation of its vaccination program, as well as current political volatility, says Fitch Ratings.
Noting that the recently announced RM 15 billion stimulus package, which includes the RM 3 billion vaccination cost, does not affect the country’s credit profile, Fitch said the main risk to Malaysia’s growth prospects, both In 2021 as in 2022, it is the schedule and the effectiveness of the vaccination program.
“We assume that the authorities will begin vaccinating in March and inoculate a sufficient number of the population in early 2022 so that they can relax the vast majority of restrictions related to the pandemic.
“The risks around the pandemic add to the existing uncertainties about the medium-term direction of policy and governance,” Fitch said in a statement here today.
He said the state of emergency, which is scheduled to last until August 1, may exacerbate the impact of persistent political instability in recent years, which contributed to the downgrade of the financial rating in December.
“Political volatility weakens the prospects for governance improvements and may have a dampening effect on private investment growth, which has declined since mid-2018 relative to previous years,” the credit rating and research agency said.
However, he acknowledged that the power struggle did not deter the government’s swift response to the pandemic, including the passing of basic legislation in Parliament to implement relief measures before the introduction of the state of emergency.
Fitch also said that the latest stimulus package presented on January 18 does not in itself significantly alter its rating on Malaysia’s credit profile.
“The fiscal package is designed to mitigate the impact of a resurgence of the virus and the new round of stricter social distancing measures in large parts of the country announced on January 11. However, more than half of the announced ringgit 15 billion (roughly 1% of GDP) consists of a reprioritization of previous measures, including RM3 billion to cover the cost of the Covid-19 vaccination program.
“The authorities expect the impact of the additional spending on Malaysia’s fiscal deficit to be offset by revenues associated with a recent spike in oil prices and spending cuts elsewhere in the budget. Therefore, at this stage they have not revised their previous fiscal deficit target for 2021 of 5.4 percent of GDP, down from an estimated result of 6.0 percent in 2020. Fitch continues to view the 2021 target as it’s achievable, ”he said.
Although the medium-term outlook for public finances remains a key rating sensitivity for Malaysia, the country has fiscal room at its current rating of “BBB +” with a “stable outlook”, following a rating downgrade of ” A- “in December. 2020.
“The downgrade was driven by a weakening of several key credit metrics amid the impact of the pandemic, particularly in relation to the sovereign’s tax burden, which was already high relative to its peers that entered the health crisis,” said.
Fitch had previously reported that the latest lockdowns will slow this year’s growth rebound in Malaysia.
Although the measures are less stringent than those imposed in March last year, Fitch said there is growing evidence from other countries that successive imposition of controls is having a weaker impact on economic activity.
“However, the final impact of the closures will depend on how long they are maintained, if they extend to other regions and if the controls are tightened. These factors will be influenced by the effectiveness of the measures to contain new cases of Covid-19, “he said.
