We received this brief ten hours ago from Chartered Accountant-turned-Minister in-charge of EPU Dato’ Seri Abdul Wahid Omar on the recent Moody’s bullish rating on the Malaysian economy and what Malaysian business could do to help sustain:
As Malaysians enjoy lower RON95 petrol price of RM1.70 per litre effective 1 February, some may have missed credit rating agency Moody’s announcement on 30 January 2015 that affirmed Malaysia’s A3 rating & Positive outlook.
An “A” rating is considered upper-medium grade & is subject to low credit risk. Positive outlook refers to a likely rating upgrade over the medium term (12-18 months).
Here’s my 1-2-3 take on Malaysia’s rating.
1)There are 3 global rating agencies ; Moody’s, Standard & Poor’s and Fitch . Moody’s and S&P are the two main agencies reatained by most global issuers. All three rating agencies have rated Malaysia at A3/A- but with different rating outlook. Moody’s is Positive, S&P Stable and Fitch Negative. At A3/A-, Malaysia has the 2nd highest credit rating in ASEAN after Singapore (AAA), and one notch above Thailand (BAA1), two notches above Philippines (BAA2) and three notches above Indonesia (BAA3). Brunei is not rated. Other ASEAN countries are below BAA3 (minimum level considered to be investment grade).
2) Moody’s is generally positive on Malaysia due to the Govt’s commitment to fiscal deficit reduction & reforms and Malaysia’s fundamental credit strengths – notably macroeconomics stability, domestic capital market depth and favourable Govt debt structure. This provides resistance to a more adverse external economic environment, lower oil prices & global financial market volatility. Moody’s acknowledged they have seen ongoing fiscal deficit reduction & actual implementation of significant reform. This includes, among others, the managed float system for petrol & diesel in Dec 2014 that effectively eliminated subsidies, reduced Govt reliance on oil revenues to 30% in 2014 and implementation of GST come 1 April 2015 which will broaden our revenue base. Meaning Malaysia has been doing the right things & potentially could have been upgraded if not for the recent sudden drop in global oil prices & market volatility. On economic fundamentals, Moody’s expects Malaysia to continue to exhibit faster growth, lower inflation & a more robust external payments (current account in Balance of Payments) position than other A rated countries. Other strengths include favourable demographics, resurgence of private investment since ETP, macroenonomic stability anchored by credibility of BNM & Govt’s favourable debt structure & depth of onshore capital markets. Only 3% of Govt debt is denominated in foreign currency.
3) What are Moody’s concerns?
First is the high level of household debt which is mitigated by low unemployment & high level of household financial assets. Second is the external payments position but Moody’s believes that Malaysia is likely to sustain a structural current account surplus & that foreign currency reserve adequacy will remain in line with other A rated countries. Third on clarity of off-budget financing entities to analyse contingent risks to Govt.
Notwithstanding the concerns, the Posiitive outlook reflects confidence that fiscal consolidation will be sustained despite prolonged low commodity prices. What could move the rating up?
Continued track record in fiscal deficit reduction and stability in the affordability & refinancing of Govt debt.
What could move the rating down? Worsening of fiscal deficit or crystallisation of large contingent liabilities.
What can Malaysian businesses/corporates do to help? Well, there are many things businesses/corporates can do to help the country / economy.
1) Help grow the economy. Optimise your expenditure. Please spend domestically if you can afford it. Invest domestically.
2) Be generous to your employees. If you make more profit, share it with them. They can do a better job in stimulating private consumption out of the bonus paid.
3) Be a responsible corporate citizen. Dont evade tax, dont bribe to get contracts, embrace inclusiveness & sustainability.
Let us all do our respective parts to navigate through 2015 & beyond Thank you & with best regards.