PH govt makes ‘significant strides’ to improve governance, says Fitch Ratings

The govt has notably improved fiscal transparency and moved to tackle corruption scandals, says the rating agency


THE Pakatan Harapan (PH) government has made “significant strides” to improve the country’s governance since taking the office in May 2018, which has helped bolster Malaysia’s credit rating, Fitch Ratings Inc said.

“It has notably improved fiscal transparency and moved to tackle corruption scandals, such as 1MDB (1Malaysia Development Bhd). This has been reflected in a jump in its World Bank governance indicators, the biggest improvement among Fitch-rated sovereigns over the last year,” the rating agency said last Friday.

Still, the firm said there is nevertheless, potential for further improvement as Malaysia’s governance indicators remain below those of its “A-” rated peers.

Fitch said the perception of the PH administration among foreign investors is particularly significant for Malaysia, as foreign- investor holdings of domestic government bonds amount to around 20% of the total, albeit down from a high of 33% in 2016 and less than Indonesia’s 39%. It further said foreign direct investment could also serve to support faster economic growth.

“Malaysia has potential to benefit from the ongoing relocation of export-oriented manufacturing from China. So far Malaysia’s exports, which are diversified across commodities and manufactured goods, have held up reasonably well, and GDP growth is estimated by Fitch at 4.5% in 2019 and 4.3% in 2020,” it said.

In an interview with the ratings agency, Fitch said Finance Minister Lim Guan Eng noted that the government believes Malaysia’s economic performance in 2020 will be better than in 2019.

According to Fitch, Lim also emphasised that last year’s special dividend from Petroliam Nasional Bhd was a one-off.

The agency stated that the government’s fiscal projections could be challenged if oil prices were to fall below its expectations, as it believed the loss of revenues from the Goods and Services Tax (GST) made the budget more reliant on oil proceeds.

“Nevertheless, the government’s oil price forecast in the 2020 budget is not unduly optimistic, at US$62 (RM254.20) per barrel, and aligns closely with our own forecast in the December Global Economic Outlook of US$62.50 this year,” it said.

The government’s move to repeal GST initially alarmed the investors on Malaysia’s fiscal outlook, but it was balanced by expectations of improved fiscal transparency and governance.

The reintroduction of a Sales and Services Tax partly offsets the revenue loss and has sought to reassure investors that it remains committed to fiscal consolidation.

“However, this commitment could be tested if revenues under-performed or if Malaysia’s economy were hit by new economic shocks, such as the outbreak of the Wuhan coronavirus. There are also risks associated with Malaysia’s high property prices and household debt,” it warned.