‘Change in govt has no impact on growth, sovereign credit rating’
Rating agency not expecting significant shift in country’s long-term macro policy
THE change in government has no impact on Malaysia’s sovereign credit rating and economic growth, said Malaysian Rating Corp Bhd (MARC).
It said under its national scale, the government of Malaysia was rated “AAA” as it had the lowest relative credit risk in the country.
The rating agency does not expect any significant shift in the country’s long-term macro policy direction at this juncture.
Growth would remain resilient on the back of economic policies that are generally proactive and practical, supported by strong macroeconomic and prudential policy frameworks.
“Bank Negara Malaysia’s effective monetary policy for example is one of the key factors contributing to Malaysia’s economic success,” said MARC chief economist Nor Zahidi Alias in a report.
MARC has maintained its real gross domestic product (GDP) growth forecast for this year at 5.3 per cent.
“Growth would generally be supported by a favourable external environment. Robust global trade, although may be affected by negative sentiment following an inward-looking United States trade policy, is key to a decent Malaysia’s export performance this year,” said Nor Zahidi.
Commendable export sector performance would in turn act to support domestic demand as MARC expects real export growth at six per cent this year.
It said the Goods and Services Tax (GST) was expected to be neutral on private consumption this year.
While it would uplift consumer sentiment in the short term, the actual consumer spending trend would depend on the GST’s removal impact on general prices.
“We foresee ‘price stickiness’ to be a major challenge for policymakers as businesses may be reluctant to reduce prices due to profiteering and a belief that most businesses would not reduce prices.
“As such, alternative mechanisms may be needed to handle the price stickiness issue postGST removal, if a decrease in prices is the objective of the authorities,” he said.
Meanwhile, RAM Ratings said the move to zero-rate GST and maintain retail fuel price was likely to reduce headline inflation by 0.7 percentage point.
It expects headline inflation to come in at 2.3 per cent this year after charting 3.7 per cent last year.
“The downward pressure could ease with future policy refinements, potentially towards a more targeted fuel subsidy, and depending on the scope of proposed changes to the tax system promised in the Pakatan Harapan’s election manifesto,”said RAM head of research, Kristina Fong.
There may also be upside risk from marginal demand-pull inflation, given that a number of the government’s election promises are supportive of private consumption.