Standard & Poor’s Ratings Services (S&P) has affirmed Malaysia’s ‘A-/A-2' foreign currency and ‘A/A-1' local currency sovereign credit ratings, with a stable long-term rating outlook.

According to Star , S&P credit analyst Takahira Ogawa said Malaysia has increased foreign reserves to US$133.6 billion from US$106.5 billion a year before, sufficient to finance 5.1 months of current account payments.

However, Ogawa noted that Malaysia suffers a moderately weak fiscal and government debt profile and expects growth in general government debt this year to remain unchanged at 5.6 percent.

“In our view, the slow fiscal consolidation stems from the high subsidies and the relatively weak revenue structure; Malaysia depends largely on petroleum-related revenues,” Ogawa said.

azlan He explained that the weak fiscal position had been adversely affected partially by large public investments to boost growth, which at times have exceeded that of the private sector.

“However, this pattern might be changing. For example, foreign direct investments seem to have bottomed out. Besides, the recent rebound of private sector investments was partially due to the government’s initiatives for the Economic Transformation Programme.

“If the trend continues, the Malaysian economy could regain its vitality.”

Ogawa said S&P may raise the sovereign credit ratings if the country records stronger growth and reduces public spending, resulting in a lower deficit.

Reforms imperative

However, if the country cannot deliver on reform measures to reduce its fiscal deficits and increase growth, the rating might be lowered.

azlan “These reforms may include, but are not limited to, the GST and subsidy reforms on the fiscal side, and private investment and economic diversification reforms on the economic growth agenda,” he said.

He expected subsidy reforms and the introduction of the goods and services tax to only take place after the next general election.

The government had pledged to reduce public debt which had ballooned from RM200 million in 2004 to RM456 million in 2011.

Opposition Leader Anwar Ibrahim said this effectively means that the debt-to-gross domestic product (GDP) ratio for 2011 stood at 51 percent, dangerously close to the debt-to-GDP ceiling of 55 percent as provided by law.

A Bank Negara report showed that, as at June 30 last year, the national debt stood at RM421 billion in local debt and RM16 billion in foreign debt.