S&P Global Ratings reaffirms Malaysia's ratings, outlook stable

S&P Global Ratings said: "The considerable depth of expertise in the new government, led by returning Prime Minister Tun Dr Mahathir Mohamad, should ensure a reasonably smooth power transition."

KUALA LUMPUR: S&P Global Ratings has reaffirmed Malaysia's foreign currency and local currency ratings with a stable outlook, indicating it may raise the ratings over the next 24 months if the strong economic performance continues from the previous years.

It  had on Friday reaffirmed the country's 'A-/A-2' foreign currency and 'A/A-1' local currency ratings.

“We expect that Malaysia's core credit strengths, including its robust external position and highly credible monetary policy settings, will continue to support the rating following the recent change in government.

“The considerable depth of expertise in the new government, led by returning Prime Minister Tun Dr Mahathir Mohamad, should ensure a reasonably  smooth power transition,” it said. 

As for the replacement of the Goods and Services Tax (GST) with the  narrower Sales and Services Tax (SST), it said this would increase reliance on commodity-based  revenues, in the absence of additional structural revenue measures. 

S&P Ratings said the stable outlook balances Malaysia's strong net external position, above-average growth performance, and track record of monetary flexibility against the risks inherent in the ongoing political transition and its sizeable government debt stock. 

The stable outlook also expected the well-established institutions will remain in place following the change in government. 

“We may raise the ratings over the next 24 months if the strong economic performance observed over the last few years continues and in turn produces a fiscal performance that's better than we expected, reducing debt levels further than anticipated,” it said. 

However, S&P Ratings said its ratings on Malaysia could face downward pressure if it assessed a weaker commitment to growth and fiscal consolidation that could in turn hurt the government debt standing. 

Indications of downward pressure on  the ratings are net general government debt and the annual change in net  general government debt surpassing 60% and 4%, respectively, in a sustained 
way. 

The ratings agency said Pakatan Harapan's (PH) May 9 election victory over the ruling Barisan Nasional (BN) government was without precedent in post-independence Malaysia. 

BN had, in various iterations, administered the Malaysian government without interruption  for 61 years prior to its recent defeat at the polls. 

Dr Mahathir has taken the reins of the government from Datuk Seri Najib Razak, who resigned as party chairman of UMNO and leader of the BN coalition following the election defeat.

“We consider Malaysia's institutions to have supported generally effective policymaking for a long time, and believe that the depth of capacity at these institutions will be sufficient to ensure an orderly power transition. 

“In particular, we emphasise that Prime Minister Mahathir boasts a long career in politics, including 22 years as prime minister from 1981-2003," it said. 

Dr Mahathir was instrumental in Malaysia's rise to middle-income status during his previous tenure, and this track record is a substantial endorsement of his capacity to support sustainable public finances and economic growth. 

He has surrounded himself with policymakers from across the political spectrum, including many who served under previous BN governments, underpinning S&P's expectations for an orderly transition.