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KUALA LUMPUR: The government is disappointed that Fitch has downgraded Malaysia’s sovereign rating from A- to BBB +, with an improved outlook from negative to stable.
In a statement, Finance Minister Tengku Datuk Seri Zafrul Aziz said the review was primarily driven by the negative impact of the Covid-19 pandemic on Malaysia’s fiscal position and the ongoing political situation in the country.
“In this regard, the government is disappointed with the outcome of Fitch’s rating, particularly during these exceptional times, as the Covid-19 pandemic is still unfolding.
Fitch’s previous rating downgrade was during the Asian financial crisis from BBB- to BB before moving to A- in 2004.
“By focusing on the fiscal position and political situation in Malaysia, Fitch’s decision does not give due justice and credit to our crisis response efforts and our strong economic fundamentals,” it said in a statement.
Zafrul explained that the government is addressing the Covid-19 crisis with stimulus packages worth RM305bil, or around 20% of gross domestic product (GDP), which would contribute more than four percentage points to economic growth this year. .
“The specific and temporary nature of the stimulus measures has helped limit the impact on the fiscal deficit.
“Structured and transparent monitoring through the National Inter-Institutional Agency for the Coordination and Implementation of Economic Stimulus (Laksana), established specifically for this purpose, has ensured the effective and timely delivery of the stimulus measure, he added.
He reiterated the study by Johns Hopkins University, that Malaysia’s containment measures resulted in the country’s fatality rate being in the lowest 10% globally. Given the reduction of the country’s fiscal deficit to 3.4% last year from 6.7% in 2009, Zafrul expects the deficit to remain among the lowest in category A this year.
Looking ahead, he noted that the country is headed for a strong recovery.
“Taking advantage of the recovery momentum of the stimulus packages implemented this year, the 2021 Budget, announced on November 6, is expected to contribute to the projected growth of 6.5% to 7.5% in 2021,” said Zafrul .
Although Fitch is concerned about the domestic political situation, Zafrul said key legislation has been passed.
Together, strong economic fundamentals and decisive fiscal measures have enabled Malaysia to respond quickly, effectively and strategically to the challenging environment, while maintaining economic growth and resilience for the future.
Fitch’s statement said yesterday that the depth and duration of the pandemic has weakened several of Malaysia’s key credit metrics.
However, recognizing the quick response of the authorities, the rating agency said that the impact of the pandemic has been substantial and has added to its fiscal burden, which was already high relative to its peers who entered the health crisis.
He said that lingering political uncertainty after the change of government last March weighs on policy prospects and prospects for further improvement in governance standards.
The recent Covid-19 spread, combined with weak investment and low income from tourism, has reduced economic activity, as it has in many countries around the world. Fitch expected GDP to contract 6.1% in 2020, before recovering 6.7% in 2021 due to base effects, but these forecasts are subject to uncertainty.
It expected government revenues to remain low at 19.1% of GDP in 2020. Fitch expected public debt to rise to 76.0% of GDP in 2020 from 65.2% of GDP in 2019.
The debt figures used by Fitch include officially reported “committed government guarantees” on loans, which are serviced by the government budget, and net debt of 1MDB, equivalent in September 2020 to 12.6% and 1.3% of the GDP, respectively.
On this basis, the debt burden is significantly higher than the medians of 59.2% and 52.7% for the A and BBB rating categories, respectively, the statement read.
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