SINGAPORE: Sovereign downgrades are likely to outpace upgrades in 2016, says Standard & Poor’s Ratings Services (S&P) in a report, “Global Sovereign Rating Trends 2016.”
Among the 131 sovereigns it rates globally, 25 had negative outlooks against eight that were positive as of Dec 31, 2015 for a ratio of three to one.
“The outlook balance, positive minus negative outlooks, has dropped to -17 from the seven-year high of -4 in June 2015,” said S&P’s Chief Rating Officer for Sovereign Ratings, Moritz Kraemer yesterday.
“This constitutes the most negative six-monthly swing in the outlook balance since December 2008.”
In December 2015, S&P put Malaysia rating outlook as remaining unchanged at A- and stable, despite domestic and global developments.
Developments over the past year, ranging from the controversy surrounding state fund 1Malaysia Development Fund (1MDB), China’s policy shift and oil prices have not affected Malaysia’s economic prospects and fiscal balance sheet, S&P’s sovereign & international public finance ratings senior director Kim Eng Tan was quoted as saying.
“The key risk is political risk and even that has moderated,” Kim said, adding, growth projection remains robust with the sovereign rating agency expecting more than 4.0 per cent this year and next year.
Malaysia’s gross domestic product (GDP) expanded moderately by 4.7 per cent in the third quarter of 2015.
Malaysia’s fourth quarter and 2015 full year’s GDP numbers will be announced in February.
S&P said the outlook distribution suggested that negative rating actions are likely to continue to outnumber positive actions over the coming 12 months.
It also indicates that the dominance of downgrades is likely to accelerate this year compared to 2015, the rating services added.
According to S&P, negative outlooks have outnumbered positive outlooks since early 2008.
However, the second half of 2015 has seen a reversal of the gradually improving trend in the outlook balance that began in 2013.
Over the past year, the outlook balance has deteriorated in all global regions, except Asia-Pacific.
Global sovereign credit worthiness has declined slightly since the onset of the global financial crisis in 2008.
The average long-term sovereign credit rating has fallen by just over one notch to between “BBB-” and “BBB”, compared with just below “BBB+” in 2008.
The average rating as weighted by the GDP of countries has also trended downward, although it has been slightly more stable, and currently standing marginally above “A+”.
This is comparable with sovereign ratings in 2005, but is slightly lower than the “AA-” peak in mid-2008, said S&P. — Bernama