Moody’s assessment of Malaysia’s political risk reflects country’s creditworthiness — Analysts

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KUALA LUMPUR: Moody’s Investor Service’s recent assessment of Malaysia’s political risk being low, speaks volumes of the country’s creditworthiness.

It is also a sign of the continuing fiscal consolidation and socio-economic measures which has been put in place by the Barisan Nasional (Alliance) government since independence.

MIDF Research economist Izzuddin Yussof agreed with the assessment that Malaysia’s political challenges due to 1Malaysia Development Bhd (1MDB) are unlikely to affect the country’s fiscal position.

“From a rating perspective, it is important that fiscal consolidation continues. As long as the current government remains, it is unlikely that the fiscal consolidation plan will change,” he told Bernama.

On Thursday, Moody’s rated Malaysia’s political risk in affecting the country’s creditworthiness as very low despite the 1MDB issue. In a report on domestic political risks in Southeast Asia, Moody’s said rising political challenges haven’t yet translated into increased fiscal risk, although the pace of budgetary tightening has slowed.

“Our assessment of domestic political risk in Malaysia remains at ‘Very Low +’, reflecting our expectation of de facto one party dominance and, consequently, policy continuity,” it noted.

Izzuddin said the performance of oil prices will determine whether a balanced budget in 2020 can be achieved. He believed the government should be able to attain the balanced budget if the oil price rebounds to US$80 per barrel in 2020 as forecast by most analysts.

Although Malaysia has reduced the dependency on petroleum related revenue, the sector still contributes a significant amount to the government coffers, he said.

Malaysia University of Science and Technology, Business School Dean, Dr Yeah Kim Leng said 1MDB should be handled well, although the potential impact on the country’s fiscal situation is not credit-threatening.

“We need to be mindful of the longer term effects on investor confidence as its ramifications extend to the nation’s governance standards, institutional trust and integrity.

“We should therefore take this window of opportunity of not being downgraded to address the unresolved concerns as there are longer term costs and irreversible damage to confidence and trust if the 1MDB woes are left to fester,” he added.

On the impact of Moody’s assessment towards investor sentiment, Bank Islam Malaysia Bhd chief economist, Mohd Afzanizam Abdul Rashid said sentiments could change.

“Eventually, foreign investors would assess the country’s fundamental in searching for value.

“As it is, there are companies or sectors benefiting from the weak ringgit, such as electric and electronic as well as rubber gloves.

This can be a good time to accumulate stocks in it, since the entry point is cheap,” he said.

He pointed out that foreign holdings in Malaysian Government Securities (MGS) rose to 46.3 per cent in October compared to September’s 45.6 per cent and foreign funds have been net buyers in the past four out of five weeks. — Bernama