MARC does not expect major macro policy shift

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) does not expect any significant shift in the long-term macro policy direction, with government transition after the 14th general election having no rating impact on Malaysia’s sovereign credit rating.

MARC’s rating methodology for sovereign issuers takes into account, among others, a country’s economic strength and prospects, the sustainability of its fiscal position, debt and contingent liabilities management, monetary and exchange rate management, the resilience of the country’s financial sector and the country’s political, institutional and social stability.

No one factor has an overriding effect on MARC’s assessment. The eventual rating is a result of interaction of multiple factors.

Economic growth will remain resilient on the back of policies that are generally proactive and practical, it said. Bank Negara Malaysia’s effective monetary policy, for example, is one of the key factors contributing towards the economic success.

Malaysia’s fiscal and debt management performance, however, are sovereign credit rating constraints. While the federal government debt-to-gross domestic product ratio has moderated recently, debt in absolute terms has risen over the years. By end-2017, government debt had risen by 50.6% from its end-2011 level, while debt guaranteed by it had risen by more than 90%.

“Political developments have raised risk perceptions, particularly about fiscal sustainability. This is especially with reference to the new government’s pledge to, among other things, remove the Goods and Services Tax (GST) which accounted for roughly 20% of total federal government revenue in 2017. While it is not surprising to see knee-jerk reactions in the market pertaining to fiscal sustainability issues, it should be pointed out that the GST is only one of many variables in the budget balance equation,” it said in a statement yesterday.

MARC said these are very early days of the new government and further policy clarity with regard to fiscal policy measures will be necessary to give a fair assessment of the budgetary landscape. Notwithstanding this, current developments are deemed positive from a longer term perspective.