Bangkok--26 Feb--Moody
The revised release follows. Moody's Investors Service has, in its latest annual report on the Malaysian government, affirmed the sovereign's A3 bond rating with a stable outlook."The A3 rating is supported by the country's moderate economic strength, which in turn is underpinned by the substantial scale of its economy and its highly open and well-diversified external sector," says Aninda Mitra, a Moody's VP/Senior Analyst and the report's author. "However, economicresilience is constrained by Malaysia's relatively moderate per-capita income level and the unlikely prospects for a sustained strengthening in domestic private demand," says Mitra. "Malaysia's institutional strength has been constrained by administrative short-comings and socio-political priorities," adds Mitra, elaborating
that "these have weakened the prospects for stronger fiscal discipline and much needed structural reform that could have boosted private investment to a greater extent."
In the report, Moody's assesses the government's overall financial strength at 'high,' explaining that "the government's financial robustness is underpinned by the country's very strong external position
and high savings rates, and these factors provide a substantial local currency and largely domestic source of financing for the fiscal deficit and general government debt, both of which have remained higher than at comparably rated peers."
Extensive price administration and relatively low private investment are the main drivers of greater federal government spending on subsidies and infrastructure, even as Malaysia's revenue framework has grown more dependent on commodity revenues, explains Mitra. "These developments are
beginning to constrain fiscal flexibility," He adds. "Consequently, the intensification of fiscal stimulus at a time of falling commodity prices and slowing revenue mobilization is resulting in a deterioration of the
fiscal deficit and debt position to a projected 5.5% and 46% of GDP in 2009."
"Nonetheless, the government's higher fiscal financing requirements will be supported by the country's high savings and deep liquidity," says Mitra. "Amidst falling private demand for credit, ontinuing external surpluses, and the absence of large or unexpected capital outflows, these
factors will support monetary stability and provide room for greater policy flexibility."
Moreover, he notes that "at a time of an unprecedented global economic crisis, the effectiveness of policy responses and the preservation of economic strength are becoming more crucial sovereign rating considerations, rather than the usual emphasis placed on the ordinal positioning of fiscal metrics."
"Furthermore, if the global economic dislocations are much more prolonged than is currently envisaged, then extensive state control of the economy may yet prove to be a relative credit advantage for Malaysia," says Mitra. "In the event of 'global disintegration,' highly open economies that are more structurally reliant on private economic activity and credit-fueled domestic demand, will face a dearth of foreign currency liquidity," elaborates Mitra.
For now, however, Mitra believes that the country's near-term vulnerability to financial or political shocks is still low, noting that, "Malaysia boasts strong and well-managed corporate and banking sectors; and its state-owned enterprises are undergoing reform." As a result, the sovereign's susceptibility to funding or exchange rate risks and contingent liabilities remained quite low.
"Looking further ahead, Malaysia's maturing and more competitive democratic system has enlivened local politics and this ought to heighten accountability, transparency, and prospects for socio-economic reforms in the long run," says Mitra. "Meanwhile, the country's overall susceptibility to political changes or near-term volatility is also low, but is being closely monitored."
The stable outlook is based on the view that Malaysian authorities will manage the country's vulnerability to the global economic and financial market crisis and avoid a deep and sustained eterioration in external credit ratios and domestic liquidity, explains the analyst. The principal methodology used in rating the government of Malaysia is Moody's Sovereign Bond Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website. The report --which is entitled "Moody's Sovereign Credit Analysis: Malaysia"-- can be accessed at www.moodys.com
For more information please contact New York
Press Information +1-212-553-0376; EMEA Press Information in London
+44-20-7772-5456; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex
Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris
+33-1-5330-1020; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig
Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow
+7-495-228-60-60; Petr Vins in Prague +4202 2422 2929; Tokyo Press
Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635;
Hong Kong Press Information +852-2916-1150; Hector Lim in Sydney +612
9270 8102; Luiz Tess in S?o Paulo +5511-3043-7300; Alberto Jones Tamayo
in Mexico City +5255-1253-5700; Daniel R?as in Buenos Aires +54
11-4816-2332 ext. 105; Leon Claassen in Johannesburg +27-11-217-5470;
Jehad el-Nakla in Dubai +971 4 401 9536; or visit our web site at
www.moodys.com
Singapore
Aninda S. Mitra
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer
Sovereign Risk Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308