RAM: Malaysia’s sovereign rating stays intact
KUCHING: RAM Ratings’ gA2 sovereign rating of Malaysia is expected to remain intact following the recent election victory of Pakatan Harapan (PH).
The ratings agency in a statement yesterday said it anticipate some economic and fiscal policy changes, which introduce uncertainties in the near term, as details are scant at this juncture.
However, the strong emphasis by the new leadership on governance and institutional reforms is a long-term positive for the nation’s fundamentals.
“RAM views Malaysia’s sound macroeconomic fundamentals as a key driver of a sustainable growth momentum and a central factor underpinning its rating going forward,” economist Kristina Fong said in a statement yesterday.
“Nevertheless, there could
RAM views Malaysia’s sound macroeconomic fundamentals as a key driver of a sustainable growth momentum and a central factor underpinning its rating going forward. Kristina Fong, RAM economist
be some potential transitory downside risks during the next 100 days leading up to PH’s formation of a new government and as the ironing out of implementation details of major campaign promises take place.
“As such, RAM maintains its current GDP forecast for 2018 at 5.2 per cent. We are monitoring developments, especially from the newly established Council of Eminent Persons, which is expected to shape most of the economic reform and maintain financial stability in this stage of transition.”
Fong said major reforms and policy changes are envisaged to be on the cards, of which the removal of the Goods and Services Tax (GST) is one of the most prominent, given the potential loss of part of the RM 44 billion in GST revenues projected for 2018.
There are several ways in which this revenue shortfall could be plugged, the economist said, including the re-introduction of the previous Sales and Services Tax (SST) in some form, the windfall from the higher than budgeted oil prices and the temporary cessation of some large government-linked projects while they are under review. The timeline for the execution of these changes and their scope will determine how fiscal deficit management is followed through.
Although no concrete plans have been announced, from RAM’s analysis, there were several avenues to rationalise expenditures in order to maintain fiscal prudence.
The other aspect of the equation that RAM will monitor is in new revenue-boosting measures that will also be required for fiscal consolidation to be sustained going forward.
“Much of the downside risk to GDP growth will fall on investment momentum which is seen to be two- fold: From a slowdown in infrastructure investment implementation rates on the back of the government’s review of contracts with foreign participation; and from market uncertainties which will dampen capacity-building activities in the near term,” Fong added.
“This will, in our view, put some downward pressure on our current private investment projection of 8.0 per cent for this year, although we are still monitoring how expedient this process will be to get things back on track.
“The review and potential reopening of government contracts to another round of open tenders could have an extended dampening effect on projects which are already underway.”
On the flipside, RAM saw that a number of PH’s ‘10 promises for the first 100 days’ were very supportive of private consumption activities and, as such, provide some potential upside to its current private consumption growth projection of 7.2 per cent for 2018.
“Again, the realisation of the consumption boost will depend heavily on how fast current policies can be changed and new ones administered, such as the GST and re-introduction of the SST – the form this will take is another aspect to consider in terms of its scope in respect of government revenue and consumption boost,” Fong said.
“In the same vein, inflation could come in lower than our projected 2.3 per cent this year on account of the narrower indirect tax reach and reintroduction of fuel subsidies, albeit targeted.
“The extent of the downward pressure on prices will hinge once again on the policy details, such as the extent of subsidy support and at what level prices will be capped.”