Review of Fitch’s rating due to Covid-19, political developments

KUALA LUMPUR (Bernama) – The review of Malaysia’s rating by Fitch Ratings is mainly driven by the negative impact of the COVID-19 pandemic on the country’s fiscal position and the ongoing domestic political situation, said Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz.

He expressed the government’s disappointment with the outcome of the rating, especially in light of the current exceptional circumstances in which the COVID-19 pandemic is still unfolding.

He said Malaysia is already starting to see the green shoots of economic recovery attributed to the various stimulus packages implemented by the government since March 2020.

“By responding to Malaysia’s fiscal position and political situation, Fitch’s decision does not give due justice and credit to our crisis response efforts and our strong economic fundamentals,” he said in a statement.

Fitch said today that it has downgraded Malaysia’s rating from ‘A-‘ to ‘BBB +’, with an improved outlook from negative to stable.

According to Tengku Zafrul, credit rating agencies have taken more than 220 negative rating actions since the beginning of March, with more than 100 sovereign downgrades as policymakers take urgent and essential measures to protect lives and livelihoods.

Governments worldwide have pledged $ 11.7 trillion ($ 1 = RM4.05) in economic stimulus packages, leading to an increase in budget deficits by an average of nine percent of gross domestic product (GDP), with global government debt expected to increase It will approach 100 percent of GDP by the end of 2020, he said.

At home, he said that the sound economic fundamentals and decisive fiscal measures have enabled Malaysia to respond quickly, effectively and strategically to the challenging environment, while maintaining economic growth and resilience for the future.

The government has responded quickly and consistently in addressing the COVID-19 crisis with four stimulus packages worth RM305 billion or US $ 75 billion, about 20 percent of GDP to help people and businesses.

“These packages are expected to contribute more than four percentage points to GDP growth in 2020.

“The targeted and temporary nature of the stimulus measures have helped limit the impact on the budget deficit,” he said.

He said the government had also halved the budget deficit from 6.7 percent of GDP in 2009 to 3.4 percent in 2019, and it is still expected to be among the lowest in the A category by 2020.

Tengku Zafrul said Malaysia is poised for a sharp recovery path in 2021, driven by the stimulus packages implemented this year, while Budget 2021 is expected to contribute to the forecast growth of 6.5 percent to 7.5 percent next year.

Malaysia’s credit standing is also supported by its robust external position, underpinned by 22 years of consistent current account surplus and significant external assets from banks and corporations.

“In terms of liquidity, we are supported by deep and well-diversified capital markets. Malaysian banks are now significantly more resilient to shocks compared to previous crises,” he said.

Meanwhile, Tengku Zafrul said the government takes note of Fitch’s concerns about the domestic political situation.

Still, it’s worth noting that important laws have been passed regarding the funding of COVID-19 measures, as well as protecting affected businesses and individuals through 2022.

“The 2021 budget was also recently passed in the policy phase thanks to the government’s continued involvement with numerous stakeholders,” he said.

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