S&P MORE UPBEAT ON MALAYSIA
Country’s structural position remains very strong, says agency
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MALAYSIA’S current account surpluses have fallen much over the past decade, but its structural position remains very strong, says Standard & Poor’s (S&P).
Policymaking remains strong as well, which makes the sovereign rating agency more optimistic about Malaysia.
S&P reaffirmed Malaysia’s rating at A- in November last year.
Craig Michaels, who was the director for sovereign and international public finance ratings, said the external balance sheet was one of the key strengths from the credit rating point of view.
“On the policy front, our rating is higher than what the market is implying on riskiness,” he said during a webcast on the credit outlook for this year and the top risks in the Asia-Pacific region.
Michaels said the 1Malaysia Development Bhd issue would not derail the policymaking strength.
However, if policymaking is to weaken due to the issue like the deterioration on the fiscal front, that could change the outlook.
Asia-Pacific chief economist Paul Gruenwald said depreciation pressures had risen in the region and governments had been taking a three-pronged approach by allowing currencies to weaken, finance the outflows with foreign reserves and to tighten restriction on the capital outflow.
“Our view is that most governments, including Malaysia, have been pragmatic in mixing the three together.”
He also expects Bank Negara Malaysia to be pragmatic and use all the tools to strike a balance between reserve reduction and capital outflow pressures on the currency.
On the credit outlook for this year, S&P highlighted adverse United States trade policies to be top on the list of elevated risks.
China, South Korea, and Taiwan may be the economies most sensitive if the new US administration adopts protectionist trade policies.
China’s debt overhang is another risk. A disorderly deleveraging of China’s outsized and growing debt burden (particularly corporate) would undermine market confidence, loan performance, and asset and commodity prices.
Higher interest cost and volatile foreign exchange also remain elevated risks for the region.
“The financial markets have since settled down since the yield spike and currency volatility after the US election, although inflation and US dollar interest rates are likely to rise.”
The other risks are corporate refinancing challenges and property market adjustment as property prices in key markets such as Australia, China and Hong Kong are rising again.