Prime Minister Abdullah Ahmad Badawi will need to win a big mandate in the March 21 elections to enable him to push through reform initiatives and tackle economic challenges, Standard and Poor's said today.

The global ratings agency in October raised by one notch Malaysia's long-term foreign currency sovereign credit rating to A-minus from BBB-plus and reaffirmed its short-term currency ratings with a stable outlook.

But S and P sovereign ratings director Ping Chew said Wednesday it would take a whole lot more for Malaysia's ratings to be upgraded further as "it gets tougher" further up the ladder.

"We are waiting to see how big a mandate that Abdullah's administration will have," Chew told the Bernama news agency.

"It is important in the sense that in the first 100 days (in office), he has carried out a number of reform initiatives."

Top priority

Abdullah, who is also finance minister, has made the fight against corruption a key priority and switched the focus to the agricultural sector from mega-projects.

But a wide victory margin is needed for him to carry this through and to shape future policies, Chew said.

The agency cited Malaysia's high debt level, towering budget deficit and a slowdown in foreign investment as among issues the premier must resolve before Malaysia's ratings could improve.

Chew said Malaysia's debt level and budget deficit last year of 5.5 percent of gross domestic product must be lowered as both were high compared with its peers in the A rating category.

Although the government has moved to consolidate its fiscal position, Chew said there was much ground to cover before Malaysia could achieve a balanced budget as Thailand had done this year.

The government aims to shrink the deficit this year, its seventh in a row, to 3.3 percent of GDP and hopes to balance the books by 2006 by making the private sector the growth engine.

Good banking system

Chew noted foreign investment, which had been sluggish in the past two years, saw some pick up in the fourth quarter last year, and the agency would monitor the progress.

Although Malaysia has sufficient domestic liquidity, foreign investment is key to ensure technology transfer in its quest to become a knowledge-based economy by 2020 and reduce the government need to pump-prime, he said.

On the bright side, Malaysia's banking system looked "pretty good" and S and P does not see any big risks, Chew said.

But he warned there may be problems for Malaysia if growth in the United States, one of its key export markets, was not sustained in the second half of the year. - AFP