Guan Eng: Expect More Credit Rating Downgrades if PN Govt Continues to Bury Its Head in the Sand

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DAP’s Lim Guan Eng has warned the government to expect more sovereign credit rating downgrades for Malaysia in the future if it does not accept that the country is in the midst of an economic and political crisis.

  • Fitch Ratings had downgraded Malaysia’s sovereign credit ratings for the first time since the 1997/98 Asian Financial Crisis
  • Malaysia is the first major Asean country to suffer such a fate in the current Covid-19 pandemic
  • Political instability and lack of transparency or governance standards led to downgrade
  • Downgrade akin to a vote of no confidence by foreign investors and financial experts
  • Urgent wake-up call for PN government to carry out urgent political and economic structural reforms
  • Government’s thin two-seat parliamentary majority implies persistent uncertainty about future policies

The recent revision of Malaysia’s sovereign credit rating by Fitch Ratings was primarily driven by the negative impact of the Covid-19 pandemic on the country’s fiscal position and the ongoing domestic political situation.

Last week, Fitch Ratings downgraded Malaysia’s long-term foreign-currency issuer default rating (IDR) to ‘BBB+’ from ‘A-’ with a stable outlook, on the grounds that the impact of the Covid-19 crisis has weakened Malaysia’s key credit metrics.

“Perikatan Nasional (PN)’s denial that Malaysia is in the midst of a political and economic crisis risks further future downgrade of sovereign credit ratings,” Lim said in a statement today.

The Bagan MP also noted Fitch Ratings had downgraded Malaysia’s sovereign credit ratings for the first time since the 1997/98 Asian Financial Crisis, making Malaysia the first major Asean country to suffer such a fate in the current Covid-19 pandemic.

“Unfortunately, the PN federal government has chosen to be in denial and not address the decline of Malaysia’s key credit metrics that led to the downgrade from A — to BBB+, namely political instability and lack of transparency or governance standards.

Reuters

“The unceremonious removal of the mentri besar of Perak by his own PN ally Umno last week, underscores Fitch’s on-the-spot assessment of Prime Minister Tan Sri Muhyiddin Yassin’s slim two-seat parliamentary majority as the cause of the political instability,” he added.

The ratings agency said measures to contain the domestic spread of the coronavirus, combined with weak investment and low tourism receipts due to the pandemic, have reduced economic activity in Malaysia, as it has in many countries globally.

Fitch said it expects Malaysia’s Gross Domestic Product (GDP) to contract by 6.1 percent in 2020 before rebounding by 6.7 percent in 2021 due to base effects, a revival of infrastructure projects and an ongoing recovery of exports of manufactured goods and commodities.

In the same statement, the former finance minister chided his successor Tengku Datuk Seri Zafrul Tengku Abdul Aziz for apparently “sugar-coating the numbers” to make Malaysia’s financial equity look good when in reality his projections are way off.

“He (Tengku Zafrul) should stop sugar-coating the numbers but disclose realistic and accurate growth projections of our GDP growth, revenue collections and government debt, which is at variance with Fitch’s analysis.

Reuters

“Fitch expects general government debt to jump to 76 percent of GDP in 2020 from 65.2 percent of GDP in 2019, and direct government debt at RM874.27 billion or 60.7 percent of GDP as at end of September, which is above the statutory ceiling of 60 percent of GDP,” said Lim.

Lim said the sovereign credit rating downgrade is akin to a vote of no confidence by foreign investors and financial experts.

He also reiterated his call for the PN government to work with all parties to resolve the crisis.

“This sovereign credit rating downgrade is an urgent wake-up call for the PN government to carry out urgent political and economic structural reforms. Unless PN seeks to unite and work together to provide certainty, clarity and consistency to our political and economic policies, Malaysia’s prospects will not be bright and the outlook foresees risks of future downgrades,” he said.

Fitch noted that the new government continues to implement some transparency-enhancing measures launched under the previous coalition, and corruption trials of former officials have continued.

However, in its view, the government’s thin two-seat parliamentary majority implies persistent uncertainty about future policies. – MMO