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KUALA LUMPUR: Two economists have voiced conflicting views on the latest Fitch Ratings review of Malaysia’s sovereign rating, one expressing disappointment and the other saying that it is expected but may change over time.
Juwai IQI chief economist Shan Saeed lashed out at the rating agency for its assessment of Malaysia’s sovereign rating, saying markets have lost confidence in rating agencies since 2010.
“Their reports and perspectives are behind the curve. They do banal analyzes that are not relevant to the market, ”he told Bernama.
He said markets are looking for macroeconomic stability, fiscal and monetary policy levers to maneuver and stimulate growth and, above all, aggregate demand that drives the calculation of gross domestic product (GDP) for all economies.
Fitch announced last Friday the downgrade of Malaysia’s sovereign rating from A- to BBB +, with an improved outlook from negative to stable.
The downgrade means that it will be more expensive for Malaysia to borrow, which in turn has a fiscal impact.
On the agency’s concern regarding the domestic political situation, Shan said that the ringgit had appreciated by 8.55% since March 23, price inflation is below 1.5% and the budget deficit is still below threshold in single digits despite change of government.
Furthermore, the debt / GDP ratio is around 60% and aggregate demand is recovering in a very structured way.
He said the real estate market is still experiencing good momentum and luxury car sales are up 3-5% qoq, while demand for energy, especially liquefied natural gas (LNG), is coming from Asia. Malaysia is the third largest LNG exporter in the world.
“The Malaysian government is doing its best to focus on people-centered policies and a growth-driven economic strategy,” he said.
Meanwhile, Bank Islam Malaysia chief economist Mohd Afzanizam Abdul Rashid said the announcement was not entirely surprising given the size of the stimulus package.
Rating agencies are in the business of giving credit opinions, which tend to change when there is new information and development, he said, adding that the focus now should be on ensuring that the economic recovery process continues.
“If we get it right, the sovereign rating could go up at some point in the future,” he said.
He said yields of the ringgit and Malaysian government securities will likely react tomorrow after the review.
However, Malaysia has large domestic institutional funds, such as the Employee Provident Fund and the Incorporated Retirement Fund, banking institutions, insurance companies, Bank Negara Malaysia and asset managers, which can act as buffers for potential liquidations, he said.
Regarding the timing of Fitch’s review, Afzanizam said it was entirely at its discretion because Fitch had pointed this out in April when it revised the rating outlook from “stable” to “negative.”
