Thursday 28 Mar 2024
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KUALA LUMPUR (Jan 4): RAM Rating Services Bhd has reaffirmed its global and Asean-scale sovereign ratings of gA2/stable and seaAAA/stable respectively for Malaysia.

Although Malaysia's external-resilience parameters have worsened amid a sustained decline in commodity prices and in view of the country's reduced foreign exchange reserves, RAM said it is still supportive of its current ratings.

However, it noted that Malaysia's ratings remained constrained by high government and household debt levels.

And amid still very volatile external conditions, RAM warned that Malaysia's ratings could be revised downwards if its fiscal position deteriorates as a result of rising on and off balance sheet debt.

"Similarly, the ratings could face pressure if there is a persistent current account deficit or if there are significant deviations in the country's economic or fiscal reforms," the rating agency said in a statement today.

Malaysia's economy is forecast to expand at a marginally faster pace of 4.5% in 2017 from an estimated 4.2% in 2016, underpinned by growing private domestic demand and a diversified economic structure.

"This pace of economic activity remains resilient despite various growth headwinds, which include the increase in prices of various consumer goods, persistent depreciation of the ringgit and heightened global risk aversion to emerging markets," said RAM head of sovereign ratings Esther Lai in the statement.

Malaysia's current account surplus is expected to remain in surplus at 1% of gross domestic product (GDP) in 2017 from an estimated 1.3% in 2016.

The government's fiscal deficit is expected to be maintained at 3.1% of GDP in 2017 — slightly higher than the government's 3% target — following various consolidation measures implemented since 2010.

"While this signals the government's commitment to its long-term near-balance budget target by 2020, it will require additional revenue measures given that low oil prices are anticipated to persist over the medium term," said RAM.

Federal government debt is expected to decline to 52% of GDP in 2017 from 53.4% in September 2016 due to fiscal consolidation efforts and the transfer of debt off balance sheet.

Adjusted government debt, which includes debt (both guaranteed and non-guaranteed) issued by strategic public sector entities, is estimated to reach 66.4% of GDP by end-2016. This level is higher than that of regional peers and is a key moderating factor of the ratings.

"That said, the debt structure remains favourable, as most of the papers are denominated in ringgit (96.5%) and are generally long-tenured. The bulk of adjusted debt is backed by long-term, income-generating assets," noted RAM.

"Correspondingly, the government's sizeable debt burden will increase debt service cost and transfers, which will constrain its fiscal space," it added.

 

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