S&P affirms Malaysia currency ratings with stable outlook

KUALA LUMPUR: Standard and Poor's  Rating Services has affirmed its "A-/A-2" foreign currency and 'A/A-1' local currency sovereign credit ratings on Malaysia.

"The stable outlook balances Malaysia's strong external asset position and high monetary flexibility with its moderate fiscal performance," it said on Tuesday.

The ratings agency lowered its oil price assumptions for 2015-2018 owing to a sharp fall in international oil prices in recent months.

"We currently expect Brent oil prices to average US$55 per barrel in 2015 and US$70 per barrel in 2015-2018," it said.

S&P said the decline in oil prices has a moderate negative impact on  Malaysia's fiscal position, given that government revenue has a high dependence on the energy sector. We now forecast the annual rise in general government debt to average about 2.8% of GDP in 2015-2018.

"However, we believe the decline in oil prices will not derail Malaysia's long-term fiscal consolidation efforts. The country's strong external position can absorb some weakness in the oil and gas sector," it said.

On Monday, S&P affirmed its 'A-' long-term and 'A-2' short-term foreign currency sovereign credit ratings on Malaysia. At the same time, it affirmed our 'A' long-term and 'A-1' short-term local currency ratings on Malaysia. The outlook on the long-term rating is stable.

It also affirmed its 'axAAA/axA-1+' ASEAN regional scale rating on Malaysia.

It explained its affirmation of the ratings because the fall in oil prices would not disrupt Malaysia's long-term fiscal consolidation. It believed the economy can withstand some weakness in the energy sector owing to its fairly diversified and broad-based growth.

"Malaysia derives approximately 15% of its GDP, 30% of government revenues (oil and gas taxes and royalties, plus dividends from Petroliam Nasional Bhd.), and 14% of exports from the hydrocarbons sector.

"In our view, Malaysia has been proactive in mitigating the fallout of the slump in oil prices. In its revised budget for 2015 announced on Jan 20, the government implemented various measures to ensure that fiscal consolidation efforts remain on track. The revised 2015 budget estimates that the fiscal deficit will widen to 3.2% of GDP from the original forecast of 3%," said S&P.

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