KUALA LUMPUR: International rating agencies have cautioned that political uncertainty is going to deter Malaysia’s credit profile as such uncertainty weighs on private investment.
Moody’s Investors Service assistant vice president of sovereign risk group Christian Fang said lawmaker departures from the ruling Pakatan Harapan (PH) coalition and the resignation of Prime Minister Tun Dr Mahathir Mohamad had ushered in a period of uncertainty.
This had made it unclear as to how or when a new government would be formed.
“Such uncertainty weighs on private investment, and if prolonged, will compound growth challenges and add downside risks to the country’s credit profile, particularly if the new government changes the policy emphasis away from fiscal consolidation and institutional reforms,” Fang said.
Moody’s expects Malaysia’s 2020 real gross domestic product growth to slow to 4.2 per cent from a 10-year low of 4.3 per cent last year, with downside risks from ongoing global trade tensions and the coronavirus outbreak.
In January, Moody’s reaffirmed Malaysia's credit profile of A3 with stable outlook.
It said the rating was supported by the country's large, diversified and competitive economy, strong medium-term growth prospects compared with similarly rated peers and ample natural resources.
Meanwhile, Fitch Solutions said intense politicking over the formation of a new government, which is likely to follow over the coming weeks, would hamper Malaysia’s ability to respond to the coronavirus (Covid-19) outbreak.
Fitch expects to see significant increase in political risks as the PH coalition was likely to dissolve, following a manoeuvre by Members of Parliament aligned with Dr Mahathir, who is interim Prime Minister, on both sides of the aisle to form a new government.
Fitch said Malaysia now either faced the prospect of a government less representative of the racial diversity in the country or an extended stalemate that leads to early snap elections being called.
“Our core view is for the formation of a new government to proceed, but in either case, the country is left without much needed leadership amid a slowing economy that must deal with the global outbreak of Covid-19,” it said in a statement today.
Fitch said accordingly, it had revised downwards Malaysia’s short-term political risk score to 69.8 (out of 100) from 72.5 previously, to reflect the risks to social stability, policymaking and policy continuity.
On July 2019, Fitch Ratings affirmed Malaysia's long-term foreign currency issuer default rating at “A-“ with a stable outlook.
CGS-CIMB analyst Ivy Ng Lee Fang said the political uncertainty was negative for the market, leading to concerns regarding policy continuity as it was unclear at this juncture who would be the next Prime Minister and/or which parties would be in the ruling coalition.
“The expected announcement this Thursday of a fiscal stimulus package to mitigate the impact of Covid-19 is likely to be delayed as well. As such, we expect the market to stay volatile with downside risks until there is more clarity on the new government and its future policy direction,” she added.
RAM Rating Services Bhd economic and sovereign head Kristina Fong said economic risk arising from the political turmoil had cast some uncertainty on public policy continuity, ongoing institutional reforms and big-ticket infrastructure project implementation.
The rating agency already expects to shave 0.3 percentage points off its initial 4.5 per cent 2020 GDP forecast this year, in light of recent virus outbreak.
Fong said these factors posed additional risks to sustained economic growth momentum given the potential negative impacts on business sentiments and thus, investment decisions going forward due to the higher level of economic uncertainties.
“That said, the ultimate economic impact will depend largely on how long these political uncertainties go on and the eventual composition of the new coalition and its mandate.
“The more cohesive and efficient the new ruling coalition is in addressing current economic concerns and uncertainties, the less risks there are to economic resilience going forward,” she said.