KUALA LUMPUR, July 31 — Ratings agency Fitch cut its outlook on Malaysia’s sovereign debt to negative yesterday, citing gloomier prospects for reforms to tackle the Southeast Asian country’s rising debt burden following a divisive election result this year.
The revision from a stable outlook adds to concerns over Malaysia’s high debt pile at a time when the currency has been pressured by bond fund outflows and talk of the US Federal Reserve ending its easy monetary policy.
Rival ratings agencies Standard and Poor’s and Moody’s both have a “stable” rating on Malaysia’s sovereign debt.
“Prospects for budgetary reform and fiscal consolidation to address weaknesses in the public finances have worsened since the government’s weak showing in the May 2013 general elections,” Fitch said in a statement.
“Malaysia’s public finances are its key rating weakness.”
The long-ruling Barisan Nasional coalition retained power in May elections, but saw its parliamentary majority weakened in a vote that exacerbated racial divisions in the multi-ethnic country.
Prime Minister Datuk Seri Najib Razak, who could face a ruling party leadership challenge in October, has announced no fresh steps to cut the fiscal deficit, such as a long-anticipated consumption tax or a reduction in the government’s heavy subsidies for fuel and food.
Fitch noted that petroleum revenues make up a third of Malaysia’s government revenues, in line with Mexico, a country that has a lower rating of BBB+. Malaysia has a long-term foreign debt rating from Fitch of A-.
Persistent high deficits have pushed the federal government’s debt to 53.3 per cent of gross domestic product at the end of last year from 39.8 per cent at the end of 2008. Malaysia has targeted a reduction of its budget deficit to three per cent by the end of 2015 from 4.7 per cent last year.
The ringgit currency weakened slightly after the Fitch statement, falling 0.2 per cent to 3.2310 per dollar by 0907 GMT (1607 Malaysian time). Before the revision, the ringgit was around Monday’s close of 3.2260.
Earlier yesterday, it fell to 3.2365 per dollar, its weakest since July 1, 2010, pressured by bond outflows. It touched 2.5520 to the Singapore dollar, the weakest since July 1998. — Reuters