The positive rating by Fitch Ratings has provided a big relief to local markets, but Malaysia is not ‘out of the woods’ yet as there are some areas of concern as highlighted by the international
Weaker external liquidity, declining current account surplus and rising contingent liabilities were among the areas of concern raised by Fitch, said Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid.
“The difficult part would be the risks related to the rising contingent liabilities and its association with 1MDB.
“We believe the issue is the main stumbling block for market confidence and therefore, addressing the issue is the utmost priority,” Afzanizam told Bernama .
Fitch in its latest rating said it continued to believe that the Malaysian sovereign is incurring additional contingent liabilities beyond explicit guarantees because of quasi-fiscal operations of state-owned entity 1MDB.
“There is a high probability that sovereign support for 1MDB will be forthcoming if needed,” it said.
Bernama was made to understand that Fitch officials went to the ground to visit new development project sites including the Tun Razak Exchange at Jalan Imbi and Bandar Malaysia at the former Royal Malaysian Air Force Sungei Besi Air Base to ascertain the projects are true before determining its ratings.
Fitch in its latest rating affirmed the country’s long-term foreign currency rating at A- and revised upwards its outlook to stable from negative.
On Malaysia’s external liquidity position, Fitch said it has weakened but still above the ‘A’ median of 104.6 percent and it was expected to improve over the forecast period.
On current account surplus, Fitch believes the fall is being driven by a decline in the savings rate and a pick up in investments that is partly driven by the Economic Transformation Programme.
Nevertheless, the current account surplus of about 4.0 percent in 2014 was above the ‘A’ median of 1.7 percent, it said.
Prime Minister Najib Abdul Razak in his statement said the government is taking firm steps in addressing the concerns raised by the rating agency.