Moody’s positive on govt efforts

KUALA LUMPUR: Moody’s Investors Service is positive on the Malaysian government’s efforts to deepen its Islamic finance market.

In a report yesterday, Moody’s said the government was increasingly using domestic sukuk to fund its budget deficit.

The move supported the sovereign’s credit quality by adding stability and diversity to its borrowing profile, and thereby lowering its liquidity risk.

“The government has been increasingly using longer term Islamic instruments to fund its deficit. As a result, the share of Malaysian Government Islamic Issues (MGII) has grown to 40 per cent of outstanding government debt at the end of the first quarter of this year, up from 13.9 per cent at the end of 2008,” said Moody’s.

“The authorities’ various initiatives to further support the market are likely to drive this share higher,” the rating agency added.

Moody’s said the shift towards Islamic financial instruments would be credit-positive for Malaysia because of the stable nature of these holdings compared with conventional bonds, and the diversification that they impart to the country’s debt profile.

Regulatory measures, according to Moody’s, had supported more active trading in Islamic instruments.

“The authorities have taken a variety of steps to further increase liquidity in the Islamic finance market and narrow the pricing gap between conventional bonds and MGII.

“For example, last year, Bank Negara Malaysia announced initiatives, including liberalising short-selling for all residents and making MGII securities with an outstanding nominal amount of at least RM2 billion eligible for short-selling in addition to conventional government bonds,” it added.

The authorities have taken a variety of steps to further increase liquidity in the Islamic finance market...

MOODY’S INVESTORS SERVICE