Bangkok--8 Jul--Moody's
Moody's Investors Service says in special comment that the stable outlook on Malaysia's A3 sovereign ratings is supported by the government's intensification of its recent structural reforms.
"We base this conclusion on the observation that recently announced reform measures could result in a significant dilution of the country's 38-year-old 'New Economic Policy,' and that they also advance the investment liberalization agenda further than anything attempted in recent years," says Mr Aninda Mitra, Moody's lead sovereign analyst for Malaysia.
Mitra was speaking on the release of the special comment -- which he authored -- discussing the sovereign credit implications of recent policy developments in Malaysia, especially following those reforms announced by the new Prime Minister, Mr Najib Razak, in late June.
"Moody's further notes that the elimination of Bumiputera restrictions and the encouragement of greater foreign direct investment are being accompanied by ongoing efforts to enhance ties between Malaysia and Singapore," says Mitra.
Moreover, these developments are expected to:
Sustain the approaching cyclical upturn in the economy by re-invigorating private investment and FDI inflows;
Assist a re-balancing of Malaysia's economy and a reduction in its outsized dependence on global demand; and
Set the stage for the government to begin unwinding its large fiscal stimulus.
"Although specific fiscal strategies and policy reforms to limit and reverse the growing overhang in government debt are still being formulated, the Najib administration's unfolding structural reform program is timely," says Mitra.
If implemented effectively alongside fiscal policy adjustments, the reforms could play an important role in re-shaping Malaysia's medium-term competitiveness, growth potential, and overall sovereign creditworthiness," says Mitra.
"However, in the current environment, the main risk to the implementation and effectiveness of reform arises from local politics," adds Mitra. "If the adversarial relationship between the government and the opposition leads to legislative or policy gridlocks, then the private sector's response to growing investment opportunities could be muted. "
The special comment is titled: "Malaysia's reforms underpin the stable outlook on its A3 sovereign rating." It can be found at www.moodys.com