Bangkok--18 Jun--Standard & Poor's
--The rating reflects the sovereign's moderately strong external liquidity position, low public sector external debt and an open, diversified, and competitive economy.
--We have affirmed the sovereign credit ratings on Malaysia with a stable outlook.
--The rating is constrained by Malaysia's weaker fiscal position compared with most of its similarly rated peers.
Standard & Poor's Ratings Services today affirmed its 'A-/A-2' foreign currency and 'A+/A-1' local currency sovereign credit ratings on Malaysia. The outlook on the ratings remains stable. At the same time, Standard & Poor's affirmed its ratings on the senior unsecured debts and the 'axAAA/axA-1+' ASEAN scale rating on Malaysia.
"The rating on Malaysia reflects the sovereign's moderately strong external liquidity position," said Standard & Poor's credit analyst Takahira Ogawa.
Malaysia's foreign reserves stood at US$96.7 billion at the end of December 2009 (versus US$91.5 billion the year before), sufficient to finance 6.7 months of current account payments. Its net external assets position was 18.4% of current account receipts (CAR) at end 2009. Gross public sector external debt was moderate at 18.6% of its CAR in 2009.
"The rating is also supported by Malaysia's open, diversified, and competitive economy, with a moderately flexible labor market, reasonably developed infrastructure, ample supporting industries, and a high savings rate (gross domestic savings were 31% of GDP in 2009)," Mr. Ogawa said.
The country also has a deep bond market, reducing its reliance on external financing. The government's economic policies are generally pragmatic and it has made efforts to enhance transparency and corporate governance, thereby helping to improve Malaysia's business environment, he added.
Malaysia's credit standing, however, is constrained by its weak fiscal position, compared with most of its similarly rated peers', although the position is improving.
"We believe the general government fiscal deficit could improve to 4.8% of GDP in 2010 from 6.2% in 2009, as the economy rebounds strongly," Mr. Ogawa noted. "We believe Malaysia's gross general government debt could rise to 57% of GDP in 2010 from the preliminary figure of 53% in 2009--well above the current 'A' rating category median of 41.8% for 2010."
However, if we exclude government bonds, which are held by the state pension and social insurance funds, net general government debt was 31.6% of GDP in 2009, and we expect it to increase to 34.9% in 2010. That is also higher than the 'A' category's median. The Malaysian government plans to reform the subsidy systems and introduce goods and service tax. However, given the political sensitivity, there is no specific timetable on these.
The stable outlook reflects Standard & Poor's expectation that, despite Malaysia's still-high fiscal deficit compared with its peers, the government will be able to refinance without a significant increase in interest rates or negative implications for the economy.
RELATED CRITERIA AND RESEARCH
What 11 East Asia-Pacific Countries Have To Teach The Rest Of The World, published May 27, 2010
Sovereign Credit Ratings: A Primer, published May 29, 2008
Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
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Takahira Ogawa, Singapore (65) 6239-6342
Agost Benard, Singapore (65) 6239-6347
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