By Surin Murugiah / theedgemarkets.com | June 23, 2015 : 3:05 PM MYT  
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KUALA LUMPUR (June 23): Fitch Ratings has placed Malaysia's sovereign rating to A-, with a “negative” outlook in its latest Asia-Pacific Sovereign Overview 2Q15 report released today.

The rating agency said the ratings reflect pressure on the sovereign’s credit profile.

“An ongoing leveraging-up of the economy, particularly in the broader public sector and households, and weakening macro fundamentals due to a widening savings investment gap.

“But the rating is balanced by reasonably strong growth rates and an external solvency position that is still strong,” said Fitch.

It noted that high dependence on commodities remains an inherent structural weakness of the credit.

It explained that goods surplus declined in the first quarter of 2015 (1Q15) from the year-ago period, on lower oil and liquified natural gas prices.

Fitch also said the Goods and Services Tax (GST) was implemented on 1 April 2015, which could be supportive of fiscal finances, but on its own is unlikely to achieve the targeted deficit reduction without the government making further spending cuts.

“Real gross domestic product (GDP) in 1Q15 rose by 5.6% year-on-year, mainly driven by strong domestic demand, as households frontloaded their expenditure as a pre-GST move.

“Contingent and off-balance sheet liabilities of the government remain a weakness in the broader public sector’s finances.

“Explicit federal government guaranteed debt at the end of 2014 stood at 16% of GDP, up from 15.4% a year ago,” it said.

Fitch said the positive sensitivities were greater confidence in the authorities’ commitment to containing direct and indirect public indebtedness.

On the negative sensitivities, Fitch said these included the emergence of sustained “twin” fiscal and external deficits, where failure to consolidate the public finances leads to the emergence of a structural current account deficit.

“A shock to interest rates or employment that is enough to impair households’ debt servicing capacity or trigger a need for sovereign support to the banking system.

“Slippage relative to the government’s fiscal targets and lack of progress on budgetary reform,” it said.

Besides Malaysia, Fitch said sovereigns across the region were seeing pressures build on growth, external finances and public finances from a combination of weaker commodity prices, the drag from a run-up in private-sector leverage, and anticipation of higher US interest rates later this year.
Fitch Rating report news just out at 3.05pm. Maintain at A-.

From han