Fis­cal poli­cies vi­tal to credit qual­ity: Moody’s

> 1MDB debt to ‘play im­por­tant role’ in de­ter­min­ing Malaysia’s con­tin­gent li­a­bil­i­ties risk

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: Moody’s In­vestors Ser­vice said while its as­sess­ment of Malaysia’s con­tin­gent li­a­bil­ity risks posed by non­fi­nan­cial sec­tor pub­lic in­sti­tu­tions has also not changed, it stressed that the sovereign credit pro­file will de­pend on the im­pact aris­ing from the new govern­ment’s fis­cal poli­cies.

“The new ad­min­is­tra­tion’s treat­ment of large in­fra­struc­ture projects that may be placed un­der re­view but have ben­e­fited from govern­ment-guar­an­teed loans in the past, and out­stand­ing debt from state fund, 1Malaysia De­vel­op­ment Bhd (1MDB), will play an im­por­tant role in de­ter­min­ing risks that con­tin­gent li­a­bil­i­ties pose to the credit pro­file,” the rat­ing agency said in a re­port yes­ter­day.

Moody’s is also main­tain­ing its es­ti­mate that Malaysia’s direct govern­ment debt was at 50.8% of the gross do­mes­tic prod­uct (GDP) last Fri­day.

On the ques­tion on which of the new govern­ment’s poli­cies will af­fect the sovereign’s credit qual­ity, Moody’s said it will ex­am­ine the poli­cies holis­ti­cally to gauge their im­pact on the credit pro­file, as in Malaysia’s case, fis­cal mea­sures are a par­tic­u­lar area of fo­cus, given that the coun­try’s high debt bur­den acts as a credit con­straint.

“Con­se­quently, to what ex­tent the new govern­ment achieves fis­cal deficit con­sol­i­da­tion will be vi­tal in gaug­ing the even­tual ef­fects on Malaysia’s fis­cal met­rics and credit pro­file.”

Not­ing that the change in the govern­ment will not ma­te­ri­ally al­ter growth trends in the near term, Moody’s said the scrap­ping of the Goods and Ser­vices Tax, in the ab­sence of ef­fec­tive com­pen­satory fis­cal mea­sures, is credit neg­a­tive be­cause this in­creases the govern­ment’s re­liance on oil-re­lated rev­enue and nar­rows the tax base, al­though this will boost pri­vate con­sump­tion in the short term.

It pro­jected that rev­enue lost from the scrapped tax would mea­sure around 1.1% of GDP this year al­beit some off­sets and it is ex­pected to ex­pand to 1.7% beyond 2018, fur­ther strain­ing Malaysia’s fis­cal strength.

“Moody’s views the tar­geted rein­tro­duc­tion of fuel sub­si­dies as credit neg­a­tive be­cause sub­si­dies dis­tort mar­ket­based pric­ing mech­a­nisms, and could strain both the fis­cal po­si­tion and the bal­ance of pay­ments while rais­ing the ex­po­sure of govern­ment rev­enue to oil price move­ments.”

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