Malaysia’s Sovereign Credit Rating revised to NEGATIVE

July 31, 2013

Malaysia’s Sovereign Credit Rating revised to NEGATIVE

Credit RatingGlobal ratings agency Fitch Ratings has revised Malaysia’s sovereign credit rating outlook from stable to negative as the possibility of addressing public finance weaknesses has deteriorated after Election 2013.

The news comes as the Malaysian ringgit slid to three-year lows against the US dollar and 15-year lows against the Singapore dollar, making imports more expensive while exports would be cheaper although exports have slipped.

But it affirmed the country’s long-term foreign and local currency issuer default ratings at A- and A, respectively.

“Malaysia’s public finances are its key rating weakness. Federal government debt rose to 53.3% of gross domestic product (GDP) at end-2012, up from 51.6 percent at end-2011 and 39.8 percent at end-2008.

“The general government budget deficit (Fitch basis) widened to 4.7 percent of GDP in 2012 from 3.8 percent in 2011, led by a 19 percent rise in spending on public wages in a pre-election year,” it said.

But Fitch believed that it would be difficult for Putrajaya to achieve its interim 3 percent federal government deficit target for 2015 without additional consolidation measures.

“Fitch sees risks even to the achievement of the agency’s 3.5 percent deficit Malaysia's Minister of Financeprojection, as this already factors in one percentage point of GDP of spending cuts.This leaves Malaysia’s public finances more exposed to any future negative shock,” it said.

It pointed out that Putrajaya’s contingent liabilities were on the rise and its debt guaranteed rose to 15.2 percent of GDP by end-2012 from 9.0 percent at end-2008, as state-owned enterprises (SoEs) participated in a government-led investment programme.

“Also, Malaysia’s fiscal revenue base is low at 24.7 percent of GDP, against an ‘A’ range median of 32.8 percent. Fitch has long emphasised two key budgetary vulnerabilities: reliance on petroleum-derived revenues and the high and rising weight of subsidies in expenditure. Fitch estimated that petroleum-derived revenues contributed 33.7 percent of federal revenues in 2012,” the ratings agency said.

“We believe the lack of progress on structural budgetary reform could be due to the general elections, resulting in the government delaying its reform. The situation was compounded by the UMNO general election that has been set on October 5.

“Indeed, the government has since put on hold its subsidies rationalisation, after it last cut its fuel subsidies in December 2010. This was made worse by fiscal transfer in 2012 and 2013 to help ease people’s financial burden,” Fitch said.

It pointed although the subsidies were projected to fall, it remained sizeable and accounts for 18 percent of the revenue in 2013 (+21.3 percent in 2012), which was still uncomfortably high.

“Way back in the early 2000s, the subsidies only accounted for 2.9-7.8 percent of revenue in 2000-2004, compared with an average of 18.0 percent a year in 2008-12.

“We expect the government to resume its fiscal reform once the Umno election is over. This may help to convince Fitch that the government is committed to bring down its budget deficit through fiscal reform including rationalisation of subsidies and implementation of the goods & services tax (GST) to broaden the government’s tax base,” it said.

But it also affirmed the Short-Term Foreign Currency IDR at F2 and the Country Ceiling at A. Despite the weaknesses, the rating house also acknowledged the strengths in the composition of Malaysia’s debt and its funding base.

“Federal Government debt is overwhelmingly denominated in local currency (97 percent at end-2012) and has a smooth maturity profile.Sovereign funding conditions benefit from deep domestic capital markets and from the role of the broader public sector in funnelling savings to the Government,” it stated.

Fitch also said Malaysia’s credit fundamentals were weak by a range standards, as the average income level of US$10,400 (RM33,597) in 2012 was closer to the BBB range median of US$11,300 than the A median of US$18,600.

“Its overall level of development and standards of governance are also considered weak for its A- rating. Fitch’s Banking System Indicator of bbb suggests the standalone strength of Malaysian banks does not weigh on the credit profile.

However, Malaysia’s high level of private sector leverage is a risk from a credit perspective,” it said, pointing out it reached 118 percent of GDP at end-2012, above the ‘A’ median 94 percent.

Malaysia’s household debt also rose from a low of 60.4 percent in 2008 to 81.1 percent of GDP in 2012 and further to 82.9 percent in March 2013 but RHB Research said it was set to rise further given that household loans in the banking system continued to outpace the growth of GDP currently. – July 31, 2013.

27 thoughts on “Malaysia’s Sovereign Credit Rating revised to NEGATIVE

  1. The simple people are already feeling the effects of hike in prices for goods and services. With the ratings brought to a single A, the snow ball effect is really worrisome. We used to be good in the ASEAN market, now we just average. We are loosing everything slowly but surely. What a shame.

  2. Its the strength of $. A$ and C$ has fallen as well as Euro. Rates are rising in $. Like I said long time back…the US will be #1 exporter of oil from 2014 and PRC will be buying lots of it.

    Here is the press release from TrimTabs on today’s stunner:

    TrimTabs Investment Research estimates that the U.S. economy added 23,000 jobs in July, down sharply from 135,000 jobs in May and 182,000 jobs in June. “Job growth this month was the slowest since September 2010 when the U.S. lost 65,000 jobs,” said David Santschi, Chief Executive Officer of TrimTabs. “The surge in mortgage rates seems to be hitting the economy hard.”

    In a research note, TrimTabs attributed the weakness in the labor market mostly to higher borrowing costs as well as looming Obamacare mandates and slowing growth in emerging economies.

    TrimTabs’ employment estimates are based on an analysis of daily income tax deposits to the U.S. Treasury from all salaried U.S. employees. They are historically more accurate than the initial estimates from the Bureau of Labor Statistics.

    TrimTabs also reported that wages and salaries increased a scant 0.4% year-over-year in real terms in July, the lowest growth of the year. This level of growth is consistent with an economy that is close to stalling.

    “The economy is much weaker than most investors realize,” said Santschi. “Most Wall Street economists expect the Fed to scale back the pace of money printing in September, but I suspect any changes will be very modest because the economy is so fragile.”

  3. We lost 8% fx against the greenback….. A$ is dropping like stones.
    We have also weakened against CNY which is stabling against the $
    While its bad for some, its great for our export which is dwindling.

  4. A lot of the responsibility for this lies with the
    Minister of Finance.
    From 39.8% in 2008 to 53.3% of GDP in 2012 !!

    “Malaysia’s public finances are its key rating weakness. Federal government debt rose to 53.3% of gross domestic product (GDP) at end-2012, up from 51.6 percent at end-2011 and 39.8 percent at end-2008.

  5. The ratings are ONLY going down the toilet unless UMNO/BN rule is ended. Don’t even care what the fiscal numbers in the next few years, it will all go down the toilet for sure because you can literally see the VENOM AND POISON SPILLING FROM THE MOUTH OF MUHIYIDDIN & MAHATHIR and their followers just eating away at everything around – while Najib pretend its got nothing to do with him and act like a clown to distract the rest of us.

  6. This is what you get when those in positions of power tell themselves that when it comes to their own personal finances more money in the bank the better. But when it comes to government finances more debt the better.

  7. We sure will have a SELAMAT HARI RAYA this year. I fear for the next year and inwards, though. With the ringgit plunging to a 15-year low against the Sing dollar, as claimed by a news portal a couple of days ago, I suspect a SELAMAT RAYA will become a thing of the past.

  8. We consistently run a budget deficit, in its 15 or is it the 16th year? Imagine we even have deficit in boom years, so does the downgrade come as a surprise?

  9. You fells are too high class lah..
    Those kampong folk who are bastions of mediocrity and religio-fascists don’t understand one whit or even imagine what sovereign credit rating, GDP or other superfluous economic terms mean. All they’re interested is, is the next ‘fix’ of BR1M or whatever handouts that is available.

    My parents used to tell me – if you can’t afford to buy it with cash – don’t! When the bought me a second hand jalopy, when i was in varsity, it was in cash. So when i wanted to sell that jalopy that was literally falling to pieces, they said that the rule of thumb, is that i had to pay a minimum down-payment of one-third and the monthly repayment must not exceed one quarter of my salary. Still holds true til today. No need for super-duper economists or financial experts to tell us.

    Nowadays the gen X,Y or whatever are so molly coddled and financially irresponsible, that everything from smart-phone to furniture also ‘boleh bayar ansuran’, with minimum ‘wang cagaran’. The Malays are most prone to this ‘error’. Why?

    Attitudes to Microcredit, often extend to Macrocredit. Both are subject to the Theory of Gravity. That’s why we have condo-cows and failed GLCs in such abundance..

  10. But don’t worry. Rosmah can still get her handbags and jewels.
    Ministers and their families are immune to Fitch and all the other viruses. This year’s government buka puasa and Hari Raya do’s continue unabated with ministers striving to outdo each other as to the numbers they can entertain. all at public expense, of course.

    So, what has changed. Fitch, or Standard & Poor’s or Moody’s notwithstanding the vomiting of national resources will continue unabated. Then when Bolehland makes the Turd World rankings, those shouting loudest about patriotism, negara, agama dan bangsa will be happily perched outside looking in at the doghouse that they have created.

    And, oh I forget. The TPP will be inked. That’s another nail in the coffin.

  11. Foreign Rating Agency being “naughty”, we have money, lots of money, if not enough go to Australia and start printing some more. So whats the problem.

  12. Er.. Dato, if you don’t mind, please correct my mis-spellings. I very scared of English cik gu, whose watching us lah.. Btw, have a good Hari Raya with Dr Kam and family. I will be taking a break too..
    Thanks, CLF for your good wishes. A lot of thanks to you for your contributions to this blog. We need more individuals like you, Frank, –Din Merican

  13. tsk, tsk…spending more than what was earned past decades, ditto with household debts…so why is this downgrading a surprise? Recalling those years when RM=SIN$=Brunei$? I can discard Brunei as they have unlimted oil reserves…But to have that lil red dot consistently $tronger than RM?? what gives? The financial world/rating agencies are not no katak dibawah tempurung lah.

  14. “High debt levels have been a growing concern in recent years in Malaysia, as the Government debt-to-GDP ratio is among the highest in South-East Asia. At 53.5% as at the end of last year, it is higher than the 25% in Indonesia, 51% in the Philippines and 43% in Thailand, noted a report by Bloomberg.

    The ratio for Malaysia is almost to the debt ceiling limit of 55%.”

    Are we copying the debts ridden countries of the West?

  15. We have now gone below our threshold and now the support becomes the resistance because we have gone too complacent in spending on credits. We are either dooming or doomed.

    Even DSAI as Finance Minister with less knowledge of Finance than Najib had performed much much way better.

  16. Our “leaders” are too busy with so many things, such as playing politics with the opposition; spying and accusing people on religions matters; throwing money into mega projects so they can line their big and deep pockets, and no time to do the needed. Doomsday befell this country. The country is expected to move down further with this bunch of vampire around,

  17. An audit should be done on the number of staffers in the PM’s Department and his private office. Even former ” I change my mode” minister is an adviser and what is his emolument and benefits ? Ex Anwar buddy Zahrin of Penang, is awaiting for his agreement from the Indonesians to take up his post as ambassador to Indonesia . What will be his perks?? Ministerial like Samy Velu, Ong Ka Ting ??? Met a young Malay guy in a hang out at Bukit Ceylon who gave a calling care with his designation as Manager, Special Rrojects, PMO !!! ( Apa itu ???) Najib the aristocrat sure knows how to keep a battalion of hangers on, but unfortunately with tax money. Bankruptcy beckons !!!

  18. This subject of poor financial management is nothing new The negative sovereign rating was just waiting to materialise. Now that it has, will see how the government handle the issue. Going by past events not surprised if it has grandmother stories to defend its bad financial policies and management. No wonder this country is slowly going down the graph! Bring back the late Tun Ismail and Tun Tan Siew Sin
    Hilmi, I was privileged to have served both Tun Tan Siew Sin (Sime Darby) and Tun Ismail Mohamed Ali (Bank Negara and Sime Darby). They taught me a lot about prudent financial management.–Din Merican

  19. And do read the biography of Saw Huat Lye, ex-General Manager of Malaysian Airlines System (MAS) – then you will understand why a new airline like MAS could achieve for many years “Best Service” award for so many years plus make profits too…. compared to Idris Jala’s WAU (Worldwide Asset Unbundling)…. I fot a feeling I know where the PM got his aphalbetic acronyms from… ETP, GTP, NEM, 1MDB, SK1M, BR1M, KR1M….

  20. It is Anwar and Pakatan’s fault that Fitch gave such a rating. This is also clear evidence of komunis working behind the scene to undermine the country, as well as interference by Western governments. And Lee Kuan Yew and Singaporeans are definitely to blame too.

  21. Din, at the East West Center forum in which you and I participated, I pointed out that the latest World Bank report said that Malaysia’s economic growth had come because of two reasons — government spending and world commodity prices. It was not the result of Najib’s economic reforms. I also said that a new survey by A T Kearney placed Malaysia’s attractiveness as a foreign investment destination last of all the countries surveyed. The Fitch report shows the other side of the coin. All of this government spending — and the inattention to strengthening the competitiveness of the business sector — is having a price. The Government cannot spend its way out of the middle income trap.
    Thanks for your input, Ambassador Malott.–Din Merican.

  22. We are in a deep deep pool and I do not think the prognosis of getting out is good. Not when our productivity is low and our human capital and talent weak and uncompetitive most of the times.

    Perhaps which I have a sneaky suspicion that we hope that the ringgit will slide to 3.80 per USD that is back to those dark days for us to buy time and bail out the gushing water.

    To do that we need all hands on the pump TOGETHER as one race. I do not see that happening. Gloomy days ahead.

    Dato – Selamat Hari Raya Eid Fitri to you and Dr Kam.

    Thanks, Robert for your Aidil Fitri wishes. Thanks also for supporting this blog with your comments.–Din Merican

  23. Dear Encik Roslan 11:39 pm

    You forgot to add the following possibilities:

    1. The Fitch negative rating is an Israeli-Jewish conspiracy to sabotage
    Malaysia, a harmonious multiethnic nation with moderate Islamic political leaders running the country
    2. It’s also due to all the anti-regime bloggers who continually badmouth
    the BN government, thus leading to negative “perceptions” “gaining traction” amongst ill-informed foreigners
    3. One way or another, the Lim family running the DAP is responsible, we will investigate and find out
    4. No worries, Malaysia is still performing well relative to the African nations
    we are currently befriending (and serving as a role model to)
    5. Anwar Ibrahim was the Finance Minister in the past. He must be responsible, one way or another !

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