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Malaysia meets to convince Fitch it's economy still sustainable

First published in The Star on 3 June 2015.

PETALING JAYA, 3 JUNE 2015 - Finance Ministry officials are reported to have met representatives from Fitch Ratings late yesterday to convince the rating agency that Malaysia’s economy “is still sustainable and should be viewed positively”.

The ministry’s secretary-general Tan Sri Irwan Serigar Abdullah said the officials would be meeting with Fitch later on Tuesday, according to a Bernama report.

Fitch on Jan 20 had indicated that it was “more likely than not to downgrade the rating of the sovereign” in the coming months, following the Government’s revision of this year’s fiscal deficit target to 3.2% from 3% of gross domestic product (GDP) as well as the reduction of the GDP growth forecast to between 4.5% and 5.5% from 5% to 6%.

The rating agency issued another statement on March 17, saying that there was more than a 50% chance of a downgrade. Several reports have noted that the downgrade could come as early as this month.

The agency’s Asia-Pacific sovereign ratings head Andrew Colquhoun had said that following the release of the March statement that Malaysia’s sovereign rating sat more naturally in the BBB-rated category based on the structural credit fundamentals.

Fitch has an A- rating for Malaysia’s sovereign credit with a negative outlook. The rating agency had downgraded the outlook to negative from stable in July 2013.

The ringgit weakened yesterday despite higher crude oil prices, pulled down by market speculation of a US rate hike and worries over Fitch’s upcoming review.

“We hope that with initiatives on fiscal consolidation and growth emphasis as well as the launch of our 11th Malaysia Plan that has allocated a total of RM260bil for development expenditure, it will give positive indicators to the rating agency,” Irwan said.

He said: "Malaysia’s economic growth was still good last year, and in the first quarter of this year, posted 5.6% growth while external trade was also growing."

Irwan told reporters after the launch of the Rice Bowl startup awards organised by the New Entrepreneurs Foundation that growth remained positive despite concerns over the balance of payments.

Last week, Moody’s Investors Service senior analyst Christian de Guzman said: "Malaysia’s ongoing fiscal consolidation might be derailed should the Government be forced to assist 1Malaysia Development Bhd (1MDB) financially."

He pointed out that this would cause the rating agency to relook its outlook, currently at A3 with a positive outlook.

De Guzman said: "1MDB’s RM42bil debt was not systemic for public finances, the economy or the banking system," and he did not see how it could affect the country’s sovereign ratings at the moment.
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