Bangkok--19 May--Moody
Moody's Investors Service has assigned an A3 foreign currency rating with a stable outlook to Malaysia's proposed U.S. dollar denominated sovereign sukuk. In Moody's opinion the obligations
that would be incurred by the sukuk are pari-passu with other sovereign obligations of the Malaysian government and therefore carry the same rating.
"Malaysia's sovereign creditworthiness has been underpinned through the global crisis by its strong external position, deep and liquid domestic capital markets, and a strong and well managed financial system", says Mr. Aninda Mitra, a Vice-President and Moody's lead sovereign analyst for Malaysia.
"These credit supportive features have ensured the 'finance-ability' and 'affordability' of larger fiscal deficits and sharply higher public debt that resulted from the impacts of and policy responses to the large external shocks of 2009," says the analyst.
"Whilst Malaysia boasts a well diversified and reasonably competitive and externally oriented economy, the government's medium-term debt stability requires greater economic and fiscal reforms than has been evinced in the recent past" says Mitra, adding "In view of this, the recent articulation
of medium-term policy goals of achieving a higher income status and fostering a knowledge driven economy, as contained in the 'New Economic Model', represent a strong intent to re-invigorate and re-balance the drivers of economic growth."
However, according to Mr. Mitra, a demonstrable commitment to specific medium-term strategies that may better underpin relative sovereign credit fundamentals is still pending. In particular, rationalization and better targeting of fuel subsidies, and the implementation of goods and services
taxes are important. Moreover, the ability to generate greater domestic private investment is also crucial to lifting trend growth prospects as well as reducing the relatively large role of the public sector in capital formation.
"Amidst the prevalence of sound monetary management and sophisticated capital markets, structural improvements in Malaysia's growth fundamentals and the government's fiscal performance could support improvements in Malaysia's sovereign ratings trajectory," says Mitra. On the other hand, he adds, "the inability to retrench Federal Government finances could weaken its debt dynamics and result in much greater sovereign credit pressure than is currently anticipated."
"The government's ongoing efforts to liberalize investment laws, foster competition and alter the country's growth model are notable developments," says Mitra. However, they may be viewed as credit
supportive if complemented by referenced fiscal reforms and sustained by political management that can successfully navigate local elections as well as Malaysia's inter- and intra-coalition politics.
The last rating action on Malaysian government bonds was on 16 December 2004 at which time the foreign currency sovereign ratings were upgraded to A3.
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 Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the
process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
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
Christian de Guzman
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308