Business

Monday May 18, 2009

Downgrading of Malaysia's sovereign ratings unlikely

By FINTAN NG


PETALING JAYA: Malaysia’s sovereign ratings is unlikely to be downgraded in the event of an extended recession in which there are four consecutive years of contraction.

The country is also unlikely to raise debt externally due to its deep and liquid domestic capital markets.

“There’s no problem with Malaysia’s sovereign ratings, it’s at A+ for local currency debt and A- for foreign currency debt,” Maybank Investment Bank Bhd fixed income research head Tan Chee Wee said.

He was responding to a report by Standard & Poor’s Rating Services (S&P) that said Malaysia, Taiwan and India were expected to be able to fund large fiscal deficits entirely from domestic sources as they had done in the past.

Tan told StarBiz that the domestic market “is liquid enough and easy enough to raise debt with five-year debt having a yield averaging 3.879%”.

He said outstanding debt stood at RM264bil for local currency and US$3.25bil and £150mil for foreign currency.

The rating agency said the sovereign ratings of a number of Asian countries were likely to remain resilient even in the event of an extended recession.

S&P’s report said should Asian economies recover next year after steep declines in many of them, the negative impact on sovereign ratings would be minimal with the exception of Thailand, Vietnam and India, which currently have a negative outlook.

It said sovereign credit quality, in the extended recession scenario, would likely deteriorate markedly but would not default unless major policy mistakes were made while credit ratings “could slip by one to four notches”.

S&P said Singapore and Hong Kong were the two governments most able to face a protracted extended recession due to their massive fiscal savings and foreign reserve cushions.

“Governments in Singapore and Hong Kong, where sovereign credit ratings are highest, could see their deficits reach 6% to 9% of GDP per year while financially constrained Indonesia and the Philippines are forecast to chalk up smaller deficits of 2% to 4% a year,” S&P said.

It said countries with shallow domestic capital markets would find constraints in local currency borrowing while external funding could be scarce or expensive.

“Even with comparatively low budget deficits, sovereigns in the speculative-grade rating categories may experience rising debt burdens from a deteriorating currency or higher reliance on external financing,” S&P said.


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