Kenanga Research: S&P’s revision to ‘negative’ not too alarming

KUALA LUMPUR: S&P Global Ratings’ recent revision on Malaysia’s credit rating outlook to “negative” from “stable” is relatively less alarming as it is triggered by justifiable policy actions amid an unprecedented economic slump, said Kenanga Research.

However, the research firm said the government must ensure political stability, resume fiscal reform and ensure fiscal efficiency, among others, to ensure a sustained or an improved rating going forward.

S&P has cited the domestic political tussle as a factor that worsens policy predictability and continuity.

“We concur with this view as constant change in policy priorities disrupts concrete progress in structural reform and fiscal consolidation initiatives,” said Kenanga Research in a note yesterday.

It added that Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had previously said the government remained committed to a medium-term fiscal deficit target of below 4.0 per cent of gross domestic product (GDP).

It said while sizeable fiscal expenditures were justified in the current environment, it was important to improve on policy targeting and execution to ensure that all announced measures were properly and efficiently channelled to those in need.

On Friday, S&P reaffirmed Malaysia’s “A-” rating with a “negative” outlook from “stable” previously, driven by the negative impact of the Covid-19 pandemic on the country’s economic growth and fiscal position.

Tengku Zafrul had on Friday said the government believed that its current fiscal policy response was the right course of action.

“This is further supported by the optimistic outlook on the economy in S&P’s report which projects Malaysia’s strong GDP growth recovery of 7.5 per cent next year,” he said.