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KUALA LUMPUR (The Straits Times / ANN): Malaysia’s rating downgrade by one of the world’s leading credit rating agencies has shed light on governance standards and political instability in the country where a third prime minister in as many years he faces possible expulsion.
Fitch’s move to lower Malaysia’s sovereign rating one step from A- to BBB + was something of a reversal of what was once a beacon of political stability in emerging Asia until its first change of government in 2018.
The agency’s comment on its decision last Friday (December 4) sparked less concern about deteriorating fiscal metrics: the “reduction in economic activity” due to the coronavirus pandemic has affected “many countries,” it said. , compared to uncertainty in policymaking and “prospects”. to further improve the governance of Malaysia. “
“The slim two-seat parliamentary majority in government implies persistent uncertainty about future policies,” Fitch said, noting that after an improvement in 2019, Malaysia’s World Bank governance score weakened this year to the 64th percentile. which is closer to BBB rated sovereigns. than those of A.
“Deteriorating governance and continuing political uncertainty could dampen investor confidence, limiting economic growth.”
Not only has the federal government faced instability since the May 2018 elections, but many of Malaysia’s 13 state administrations have also been shaken, with major ministries changing hands at least seven times since then. including last week’s removal from office of Datuk Seri Faizal Azumu from Perak by his own Perikatan Nasional (PN) allies.
In an immediate response, Finance Minister Tengku Zafrul Aziz said that “the government is disappointed with the outcome of Fitch’s rating, particularly during these exceptional times, as the Covid-19 pandemic is still unfolding” and accused the company of failing to give “due justice and credit to our crisis response efforts.”
This has led to criticism that the Muhyiddin Yassin administration, which controls only 112 seats in the 220-member parliament, has not understood the point of the downgrade.
Opposition leader Anwar Ibrahim said last Saturday that the Finance Minister “was unable to address the key areas of Fitch’s concerns, namely political stability and governance.”
“The so-called ‘Sheraton Move’ in February not only unleashed political chaos, but also marked the beginning of a reversal of the institutional reforms that Pakatan Harapan (PH) had been promoting,” he added, referring to the coup that PN installed.
Prime Minister Muhyiddin’s nine-month reign has been widely viewed as a period in which political imperatives have taken precedence in decision-making, with more than nine-tenths of government MPs appointed to administration or businesses controlled by the government. state.
Civicus Monitor’s recent “People Power Under Attack 2020” annual report called civil liberties in Malaysia “obstructed” noting that “following the change of government in early March 2020, activists, including students, have clashed to judicial harassment of the police for their activism. ” “and journalists have been harassed by the authorities.
Despite the fact that Datuk Seri Zafrul insisted that the political climate has not prevented the approval of “key legislation … in relation to the financing of Covid-19 measures, as well as … Budget 2021”, this latest draft of law only got a second reading. last month after the government succumbed to pressure from its own advocates to extend loan moratoriums and expand immediate withdrawals of mandatory retirement savings.
The opposition and analysts have asked the government to present a motion of confidence in Parliament to demonstrate its majority and ease concerns about its stability.
“Under normal circumstances, a reduction is not a justifiable reason to ask for a vote of no confidence … but the context is … the parliamentary majority belonging to the PN is very low. It is not unreasonable for the opposition to raise this,”, said Tricia Yeoh, executive director of the IDEAS think tank.
Ambank Research said Monday that “the downgrade serves to highlight the need to further strengthen our reforms, transparency and inclusion.”
“The downgrade would raise our cost of borrowing. However, it is now unclear whether S&P and Moody’s will follow suit,” he added, referring to the rest of the “Big Three” rating firms.
In June, S&P had changed its outlook on Malaysia from stable to negative, as “uncertainty regarding … further changes in government or early polls” undermines “the predictability of policymaking at a crucial time” .
Since the government projects that the deficits of 2020 and 2021 will be worth 6 and 5.4 percent of the economy, respectively, it will need to borrow more than 170 billion ringgit (55.8 billion Singapore dollars) in these two years to fund Covid-19 stimulus packages and development spending.
Financial experts believe that increasing accountability in government and having an idea of how to pay for current spending (the 2021 budget is Malaysia’s largest at RM322 billion) would improve Malaysia’s credit rating record.
Jalil Rasheed, former CEO of Permodalan Nasional Berhad, one of the largest stewards of state funds, called on lawmakers to “start unlinking business and politics and allow it to be professionally managed. This will ensure a continuation in case there is a future political change. “
“Transparent spending tracking and accountability reporting of what worked and what didn’t. This will help ensure future spending is data-driven and doesn’t fire blank bullets. Understand where future revenue is coming from? At some point, all these pandemic expenses it is necessary to pay back the money to reduce the level of debt, “he suggested.
Former Finance Minister Lim Guan Eng said on Monday that the cut was “an urgent wake-up call for the PN government to carry out urgent political and economic structural reforms.”
“Unless PN seeks to unite and work together to bring certainty, clarity and coherence to our political and economic policies, the outlook for Malaysia will not be bright and the outlook foresees risks of future downgrades,” he added.
Deputy Finance Minister Shahar Abdullah told Parliament on Monday that public coffers were affected by falling oil prices of around $ 40 a barrel instead of the $ 60 projected for 2020, and that the recovery of the unpopular goods and services tax on consumption, retained by the PH government in 2018 – “not our current priority.”
“We are implementing structural reforms to expand revenues and improve governance. The Minister of Finance is committed to a Fiscal Responsibility Law,” he said. – The Straits Times / Asia News Network
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