Malaysia is proving vulnerable to Asia-Pacific trouble. Source: Flickr
Credit rating agency Moody’s has cut the Malaysian sovereign rating outlook to stable from positive due to the negative impact of wider changes affecting Asean and the wider Asia-Pacific region.
The ratings house said the change in outlook reflected a deterioration in Malaysian growth and external credit metrics due to external pressures over the past year. It affirmed Malaysia’s issuer and senior unsecured bond ratings at A3.
The move brings Moody’s outlook into line with that of Standard & Poor’s and Fitch Ratings, with all three companies ranking Malaysia at their fourth-lowest investment grades.
Moody’s said the changing external environment reduced the federation’s revenues.
“Those environmental changes have also undermined Malaysia’s external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves,” Moody’s said.
Malaysia’s material domestic imbalances continued to pose a risk to growth and household debt remained high, it added.
Despite progress in relation to fiscal consolidation, Moody’s expected Malaysia’s public debt burden and debt affordability to see only limited improvement. Malaysia’s November industrial production slowed to its weakest pace in 16 months, hurt by reduced global demand and a decline in mining production.
Moody’s move comes despite Prime Minister Najib Razak’s efforts to improve national finances.
Since Moody’s assigned a positive outlook in November 2013, Kuala Lumpur had sought to improve its finances, rationalising fuel subsidies and putting in place a goods and services tax, the ratings company said.
But the impact on Malaysia’s balance sheet had been limited and would remain so, in part due to changes in the external environment, it said.
“Those environmental changes have also undermined Malaysia’s external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves,” Moody’s said.
The ringgit, which had already fallen before Moody’s announcement amid general risk aversion related to China, was 0.6 per cent lower at 4.41 a dollar. The yield on the 10-year government bond was up three basis points to 4.25 per cent.
The outlook cut from Moody’s comes about six months after Malaysia avoided a credit rating downgrade from Fitch. The ringgit slumped about 19 percent in 2015, falling to a 17-year low, as international investors unloaded Malaysian equities amid domestic political turmoil, falling oil prices and a selloff in emerging-market assets.
“It was always difficult for Moody’s to maintain the outlook at positive let alone think about an upgrade given the current environment of low commodity prices and the weak external backdrop,” economist at Nomura Holdings in Singapore Euben Paracuelles said. “The fact that they’ve kept it at stable is likely in recognition of the fact that there are actual fiscal reforms that are happening.”
