Standard and Poor's said today it had raised Malaysia's sovereign credit ratings to reflect its progress in reducing its financial support for well-connected entrepreneurs.

The long-term foreign currency sovereign rating was raised one notch to BBB-plus from BBB and the outlook is stable, S and P said.

"The upgrade is to reflect the lower risk to the public purse from government support for ailing private-sector companies; a tendency that has eroded the government's financial position and created moral hazard for private business," S and P said in a statement.

S and P credit analyst Liew Chih Wai said the Mahathir administration had shown new-found commitment in the last year to difficult debt restructuring and foreclosing assets.

It had replaced the management and owners of large and previously politically well-connected corporations, "while refraining from using public funds for more corporate bailouts", Liew said.

The leadership succession plan for Deputy Prime Minister Abdullah Ahmad Badawi to succeed Prime Minister Mahathir Mohamad "has effectively reduced the near-term uncertainty in Malaysia's policy environment and prevents a disorderly transition".

Economic recovery

The government's fiscal position is also expected to improve as the pace of economic recovery quickens.

"Reflecting improved economic prospects, net general government debt is projected to peak at about 47 percent of GDP (gross domestic product) in 2003, before easing gradually, thereby safeguarding the government's fiscal flexibility in dealing with any future difficulties," Liew said.

S and P also raised the short-term foreign currency sovereign rating to A2 from A3 previously and upgraded the long-term local currency sovereign rating to A-plus from A.

The long-term local currency senior unsecured debt rating was raised to A-plus from A while the long-term foreign currency senior unsecured debt rating was upgraded to BBB-plus from BBB, it said.

The short-term local currency issuer credit rating was affirmed at A1. — AFP