Fitch unit predicts muted foreign investment as political instability weighs on Malaysia’s appeal

A bird's-eye view of Kuala Lumpur July 8, 2020. — Picture by Hari Anggara
A bird's-eye view of Kuala Lumpur July 8, 2020. — Picture by Hari Anggara

KUALA LUMPUR, Jan 6 — Malaysia’s current account surplus is expected to reach 3 per cent of its gross domestic product (GDP) this year on the back of sliding imports but a strong ringgit and political instability could weigh on exports and deter foreign investors, a Fitch unit said today.

Goods balance will likely remain robust even as the country faces a surge in Covid-19 infections as imports could stay subdued despite expectations that regional demand would pick up, Fitch Solutions Country Risk and Industry Research said in its outlook issued this morning.

“We expect the goods balance to remain robust despite risks posed by the third wave of Covid-19 infections, with imports likely to remain subdued even as external demands pick up as the region ramps up vaccinations,” the group said.

The Fitch unit had also revised Malaysia’s current account estimates for 2020 to 2.2 per cent from just 0.6 per cent previously. It was 2.9 per cent in 2019.

Other supportive factors include a strong crude palm oil price outlook, the group said.

But a strong ringgit will likely limit the extent of the goods surplus, it added. 

South-east Asia’s third largest economy saw its currency breach RM4 against the greenback two days ago, its first since June 2018, but retreated versus the US dollar yesterday on technical correction after three consecutive days of gains.

As of 6pm yesterday, the local currency stood at 4.0140/0200 versus the greenback from yesterday’s close of 4.0040/0090.

Fitch Solutions said “high political risks” and a third wave of Covid-19 infections could also weigh on Malaysia’s financial account, as foreign investors are likely to keep capital needs at home.

“As where the financial account is concerned, we still see a subdued outlook in 2021, given that much of the global economy will likely be focused on the capital needs at home as they recover from the pandemic,” the group said in its outlook.

But a strong goods surplus is expected to lend support to the overall current account balance, Fitch Solutions said.

Imports are likely to continue lagging exports to a significant degree, it added.

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