Najib Sees Malaysia Escaping Fitch Rating Cut
(Bloomberg) – Prime Minister Najib Razak said he believes that Malaysia can avoid a cut to its credit ratingwhile the government will try its “level best” to prevent a breach of its self-imposed sovereign debt ceiling.
“We will manage it,” Najib said in an Oct. 11 interview in Putrajaya, the country’s administrative center near Kuala Lumpur. “We’re very closely monitoring how we manage our macro position as well as our fiscal and debt to make sure that we will not be downgraded.”
Najib raised subsidized fuel prices for the first time since 2010 and said he’d delay some public projects after Fitch Ratings cut Malaysia’s credit outlook to negative in July, citing rising debt levels and a lack of budgetary reform. The country, which has a long-term foreign-currency denominated rating of A- at Fitch, has run annual budget deficits every year starting in 1998.
At 53.3 percent, Malaysia’s debt-to-gross domestic product ratio is the highest among 12 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg. Moody’s Investors Service said last month the budget gap may exceed Najib’s target of 4 percent of GDP this year and warned fiscal targets will become “increasingly out of reach” unless further measures are taken. Moody’s rates Malaysia government bonds A3 with a stable outlook.
The government will further cut state subsidies, broaden its tax base and manage spending “prudently,” said Najib, 60, who is also finance minister, without elaborating. Cabinet will meet before the 2014 budget is released Oct. 25 to decide if there’s enough public support to introduce a goods and services tax, he said.
Taxing Challenge
“We are quite positive on Malaysia,” Enrico Tanuwidjaja, a Singapore-based economist at Nomura Holdings Inc., said by phone yesterday. “They are on a fiscal consolidation path and they will boost the revenue base if the government can push through the GST in the coming budget. A sub-3 percent fiscal deficit could happen in 2016, if not in 2015 as per the official aim.”
The ringgit has fallen 3.8 percent this year, the fifth worst performer among 11 most traded Asian currencies tracked by Bloomberg. The currency could gain over time if the nation’s fundamentals remain strong, central bank Governor Zeti Akhtar Aziz said in an Oct. 12 interview with Bloomberg News in Washington.
“We believe that, over the medium term, yes, it should reflect underlying fundamentals, and if the underlying fundamentals remain strong, then over time it should be an appreciating trend,” said Zeti, predicting stronger economic growth in 2014.
The government earlier planned to introduce a 4 percent GST by 2011. It hasn’t said what the rate may be if it now goes ahead.
‘Level Best’
“We are one of the very, very few countries in the world which doesn’t have a GST,” said Najib, who was returned to power in a general election in May with a reduced majority as his coalition lost the popular vote for the first time. “But there are challenges. Anything to do with any new form of tax, like consumption tax in Japan, carbon tax in Australia, these are big issues that cannot be easily decided.”
The government will “try our level best” not to go beyond its debt ceiling of 55 percent of GDP, said Najib, a U.K.- educated industrial economics graduate. If Malaysia can achieve 5 to 6 percent GDP growth “we should be able to manage the debt ceiling,” he said. “The weakening external global economy is of concern to us.”
Southeast Asia’s third-largest economy withstood faltering overseas demand in the past year as Najib gave handouts to voters and boosted investment ahead of the May vote. GDP expanded more than 4 percent in each of the 15 quarters through June 2013.
