KUALA LUMPUR (Mar 23): A strengthening US dollar is likely to hurt countries with large external financing needs, including Malaysia, according to Moody’s Investors Service.

In a sector comment released today, Moody’s said that in recent weeks, the strengthening US dollar had prompted a sharp currency depreciation and/or a significant decline in the foreign exchange reserves of a number of countries.

A Moody’s senior vice president and co-author of the report entitled "US Dollar Strength Hurts Countries with Large External Financing Needs” Marie Diron said the anticipated rise in US interest rates and subdued growth prospects for some countries were making investment in these markets less attractive.

The report said said that to the extent that these fluctuations reflect capital outflows or significantly lower external inflows, they were credit negative for countries with large external funding needs.

Moody’s said that for countries with large pending external debt payments, such as Malaysia, Turkey and Chile, marked depreciations of their exchange rates make it more expensive for corporations to service foreign currency debt.

It could also crimp the willingness of foreign creditors to refinance local currency external debt.

Moreover, Moody’s said that for some countries, falling commodity prices weigh on export revenues, lowering current account surpluses or increasing deficits.

It said Malaysia, Chile, Colombia, and Peru were among the commodity exporters that have faced external pressures.

Diron said that the erosion of reserves buffers was credit negative for sovereigns, most particularly in countries where reserves are relatively low in relation to forthcoming external debt repayments.