Moody’s sticks to its view on Malaysia debt load

The Nation - - AEC -

RAT­INGS agency Moody’s In­vestors Ser­vice is main­tain­ing its es­ti­mate of Malaysia's di­rect gov­ern­ment debt at 50.8 per cent of GDP in 2017.

It said on Wednesday its as­sess­ment of con­tin­gent li­a­bil­ity risks posed by non-fi­nan­cial sec­tor pub­lic in­sti­tu­tions has also not changed fol­low­ing some state­ments by the new fed­eral gov­ern­ment led by Pakatan Hara­pan, which won the 14th gen­eral elec­tion on May 9.

“How­ever, 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, un­rated), will play an im­por­tant role in de­ter­min­ing risks that con­tin­gent li­a­bil­i­ties pose to the credit pro­file,” it said.

Moody's said 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,” it said in a re­port en­ti­tled: "Gov­ern­ment of Malaysia: FAQ on credit im­pli­ca­tions of the new gov­ern­ment's poli­cies".

Com­ment­ing on the im­pact of the new gov­ern­ment's re­moval of the coun­try's goods and ser­vices tax (GST), Moody's said in the ab­sence of ef­fec­tive com­pen­satory fis­cal mea­sures, “this de­vel­op­ment is credit neg­a­tive be­cause it in­creases the gov­ern­ment's re­liance on oil­re­lated rev­enue and nar­rows the tax base”.

Moody's es­ti­mated rev­enue lost from the scrapped GST would be around 1.1 per cent of GDP this year — even with some off­sets — and 1.7 per cent be­yond 2018; fur­ther strain­ing Malaysia's fis­cal strength.

On the planned rein­tro­duc­tion of fuel sub­si­dies, it viewed this as credit neg­a­tive be­cause sub­si­dies dis­tort mar­ket-based pric­ing mech­a­nisms.

The move could also strain both the fis­cal po­si­tion and the bal­ance of pay­ments while rais­ing the ex­po­sure of gov­ern­ment rev­enue to oil price move­ments.

On the growth out­look, Moody's pointed out the change in gov­ern­ment will not ma­te­ri­ally al­ter growth trends in the near term.

The re­moval of the GST could boost pri­vate con­sump­tion in the short term.

“How­ever, a re­view of large in­fra­struc­ture projects could also re­sult in any pick-up in in­vest­ment be­ing more spread out than Moody's had pre­vi­ously an­tic­i­pated,” it said.

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