SINGAPORE, March 18 — Malaysia’s credit rating is “more than 50 per cent likely” to be downgraded as its trade balance worsens and a state investment company struggles to meets its debt obligations, Fitch Ratings said.

The Southeast Asian nation would “sit more naturally in the BBB range,” Andrew Colquhoun, head of Asia Pacific sovereign ratings, said in an interview in Singapore today. Malaysia is rated A- by Fitch, the fourth-lowest investment grade, and two steps above BBB. The ringgit erased gains.

A deteriorating current-account surplus exposes Malaysia to volatility in investor sentiment, and Fitch will review the country next quarter, Colquhoun said. Developments surrounding 1Malaysia Development Bhd., whose advisory board is headed by Prime Minister Datuk Seri Najib Razak, and which has been forced to dismantle its assets amid surging debts, is a “country demonstration of what weaker governance means,” he said.

The ringgit fell 0.2 per cent to 3.7020 a dollar as of 12.15pm today in Kuala Lumpur, data compiled by Bloomberg show. The currency earlier rose as much as 0.24 per cent. One-month non-deliverable forwards fell 0.2 per cent to 3.7132 after climbing as high as 3.6984.

“The Fitch comments saw the ringgit giving up some of its gains,” said Khoon Goh, a Singapore-based strategist at Australia and New Zealand Banking Group Ltd “There is a risk of a rating cut, but it’s hard to say whether this has been priced in or not.”

Negative outlook

Fitch assigned a negative outlook to Malaysia’s rating in July 2013, and affirmed the stance a year later, as the excess in the nation’s broadest measure of trade narrowed amid a surge in imports following Najib’s US$444 billion (RM1.6 trillion) push to boost infrastructure in this decade. The current-account surplus shrank to RM6.1 billion in the fourth quarter, the least since June 2013. Exports contracted in January for only the second time since 2013.

Plunging crude prices prompted the government to raise this year’s fiscal-deficit target and cut the economic growth forecast as a drop in earnings hurts Asia’s only major oil exporter.

The existence of entities like 1MDB and the rise in the amount of debt of state-owned entities that’s guaranteed by the government “discount the support that we give to the credit from the consolidation of public finances,” Colquhoun said. “The current-account surplus is narrowing. It may well tip into a deficit this year depending on how the decline in oil prices feeds through.” — Bloomberg