Malaysia serious about debt reduction

Publication: NST

Date of publication: Dec 4, 2013

Section heading: Business Times

Page number: 003

KUALA LUMPUR: Malaysia's energy and subsidy rationalisation shows its commitment to implementing fiscal reforms, said Moody's Investors Service and JPMorgan Chase Bank.

The latest electricity tariff hike, coupled with fuel price rise and implementation of the goods and services tax (GST) in 2015, will help reduce fiscal deficits and move the country forward, they added.

Moody's senior analyst and sovereign ratings group vice-president Christian de Guzman said the tariff hike will have a one-off impact on inflation.

Having too many heavy subsidies may not be good for inflation as countries such as China, Indonesia and India, where utility and petrol prices are low, see highly volatile consumer price indices, de Guzman said at a briefing here yesterday.

ff review represented a further push for fiscal consolidation by the government. It would also save up to RM4 billion in both foregone revenues from national oil company Petroliam Nasional Bhd and direct government subsidies.

"We had previously been sceptical of the likelihood of sustained fiscal consolidation but more recently, the evidence seems to suggest that fiscal reform is moving faster than expected and is a very positive development," Bernama quoted JP Morgan as saying in a research note yesterday.

"This may change the perception of investors around the fiscal risks in Malaysia and help provide support to the capital account."

Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili said on Monday electricity rates in Peninsular Malaysia will go up by 14.98 per cent, or 4.99 sen, to 38.53 sen per kilowatt hour, from January 1.

Moody's has retained Malaysia's A3 sovereign rating, but changed the outlook to positive from stable.

This is based on improved prospects for fiscal consolidation and reforms and the country's resilient growth, benign inflation rate and current account surplus.

"Concerns of political instability have faded quite a bit after the country's general election in May, and that allows the government to push through its fiscal reforms," de Guzman said.

He said while the execution of reforms will be politically and administratively challenging, it will result in narrower fiscal deficits that will stabilise the country's debt dynamics.

"We are still waiting for active implementation of reforms to see how deficits will improve, before a possible rating change over the next 12 to 18 months," he said.

Meanwhile, according to Moody's Analytics, the credit risks faced by Malaysian companies in aggregate had improved tenfold over the last five years and by more than 50 per cent in the last 12 months.

Its senior director and head of credit and portfolio solutions in Asia Pacific, Vanessa Wu, said corporates in Malaysia have lowered their market leverage - liabilities as percentage of enterprise value - substantially since the global financial crisis.

"They have also improved their theit business risk slightly. The improve credit risks for companies across the different industries in Malaysia are in line with the country's improving trend," she said.

The only exceptions to the better credit profiles are in the consumer durables and consumer services sectors, she added.