Fitch's Take on Malaysia

 International ratings agency, Fitch Ratings says that Malaysia requires structural reforms to improve its long-term growth prospects and strengthen a credit profile that came under pressure in 2009 due to deteriorating public finances.

The agency said in a press release today that Malaysia, like many governments and central banks, faces the challenge of timing exits from fiscal and monetary stimulus without tipping the economy back into recession or allowing inflation to get out of control.

“Looking forward, Fitch looks for structural reform to improve Malaysia's long-term growth prospects and see the credit profile strengthen again,” said Andrew Colquhoun, Fitch's director of Asian Sovereign Ratings, at a conference in Kuala Lumpur today, according to the press release.

Malaysia’s A- rating by Fitch is considered investment grade and ahead of Thailand (BBB) and Indonesia (BB+) but behind South Korea (A+), Japan (AA), Australia (AA+) and Singapore (AAA).

In a copy of the conference presentation that was made available to the media, Fitch said that Malaysia’s public debt was climbing and now above the median of its peers.

It also noted that low government revenues were compounded by rising deficits — which hit a high of 7.4 per cent of GDP last year — and increasing dependency on the energy sector.

The Najib administration has said however that it is committed to reducing the budget deficit to around 5.6 per cent of GDP this year.

The presentation also said that Malaysia’s governance indicators in areas such as regulatory quality, political stability, rule of law, control of corruption and accountability were “below ‘A’ range norms”.

The key ratings drivers that Fitch would be looking at will be the country’s budget performance in 2010, revenue reforms and structural reforms especially the highly anticipated New Economic Model to be announced later this month.

According to international news agency Reuters, Colquhoun had also expressed disappointment during the conference that the proposed Goods and Services Tax (GST) was reported to have been postponed.
“That kind of reform and structural improvements in the budget revenue is what we look for to restore positive pressure in the credit ratings," Colquhoun was quoted as saying.

Fitch has forecast the Malaysian economy to grow at 4 per cent this year, which is lower than the Najib administration’s forecast of between 5 and 6 per cent. Fitch expects Malaysia to grow at about the same pace as South Korea and Taiwan and ahead of Thailand (3 per cent) but behind Singapore (5 per cent) and Vietnam (5 per cent).