Bangkok--12 Jun--Standard & Poor's
Standard & Poor's Ratings Services said today said that it is evaluating the impact that Malaysia's (foreign currency A-/Stable/A-2; local currency A+/Stable/A-1) recent hike in government employee salaries will have on the sovereign's fiscal position.
On May 21, 2007, the Malaysian government announced pay increases of 7.5%-35.0% for more than 1 million of its employees. The increases, which will take effect on July 1, are expected to cost the government 8 billion Malaysian ringgits annually (1.5% of GDP). The government has indicated that it would not borrow to finance this spending and will instead rely on an expected increase in operating revenues. We expect such additional income to be generated from higher oil revenues and dividend payments by public enterprises and from cuts in subsidies. The government has reiterated its commitment to bringing down the central government fiscal deficit to 3.4% of GDP in 2007.
Malaysia's fiscal position is the weak element of its credit profile. Although the general government deficit has declined steadily to 3.4% of GDP in 2007 from 5.1% in 2003, this ratio remains above the current median of 0.5% for 'A' rated sovereigns. Notably, the sovereign's debt burden has shown little improvement in recent years, keeping within 45%-48% of GDP. The government's strategy of maintaining sustainable deficits is likely to keep this debt ratio above the 'A' rating category median, which was 37% of GDP in 2006. However, good growth prospects, a strong external position, and a healthy financial sector balance this credit weakness. The outlook on Malaysia could be revised to positive if Standard & Poor's determines that the government's deficit targets can be met with recurring revenues or sustainable expenditure cuts.
Media Contact:
David Wargin, New York, NY (212) 438-1579
[email protected]
Analyst Contacts:
Sani Hamid, Singapore (65) 6239-6346
John Chambers, CFA, New York (1) 212-438-7344