Stimulus package poses no huge impact on Malaysia’s credit profile: Fitch

KUALA LUMPUR: Malaysia’s latest stimulus package unveiled on January 18 does not significantly alter Fitch Ratings’ views on the country’s sovereign credit profile.

Like many other countries, Fitch said Malaysia’s growth and recovery outlook was dependent on the rollout of its vaccination programme, and the current political volatility.

“Recent developments highlight ongoing risks to the country’s economic and fiscal outlook posed by the progression of the coronavirus pandemic and uncertainties surrounding the vaccine drive to counter it,” the firm said in a statement.

Fitch said Malaysia’s latest fiscal package was designed to mitigate the impact of a resurgence of Covid-19 and the new round of tightened social distancing measures in large parts of the country announced on January 11.

However, more than half of the announced RM15 billion stimulus, or about one per cent of the country’s gross domestic product (GDP), consisted of a reprioritisation of previous measures, the firm added.

This included RM3 billion to cover the cost of the Covid-19 vaccination programme.

“The authorities expect the impact of the additional spending on Malaysia’s fiscal deficit to be offset by revenues associated with a recent rise in oil prices and spending cuts elsewhere in the budget.

“Hence, at this stage they have not revised their previous 2021 fiscal deficit target of 5.4 per cent of GDP, down from an estimated outturn of 6.0 per cent in 2020,” Fitch said, adding that it still viewed the 2021 target as achievable.

The firm said although the medium-term outlook for public finances remains a key rating sensitivity for Malaysia, the country has fiscal headroom at its current rating of ‘BBB+’ with Stable Outlook, following its downgrade of the rating in December 2020, from ‘A-‘.

The downgrade was driven by a weakening of several key credit metrics amid the pandemic shock, in particular relating to the sovereign’s fiscal burden, which was already high relative to peers going into the health crisis.

“The latest lockdowns will dampen this year’s growth rebound in Malaysia. However, the measures are less stringent than those imposed last year, and there is growing evidence, as in other countries, that the successive imposition of controls is having a weaker impact on economic activity,” Fitch said.

Source: NST