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Monday, March 23, 2009

A Quick Look At Malaysia's Credit Rating (Hutang) Score

Malaysia Sovereign Credit Rating
Fitch Ratings expects Malaysia’s sovereign ratings to be downgraded in the next 12 to 18 months (1Feb 2009 & Beyond), following the government’s intention to table its second and expectedly larger stimulus package, in efforts to prevent the country from falling into a deep and prolonged recession.

It had placed the country on a negative outlook in late Jan 2009, indicating that the rating was more likely to be downgraded.

In late Jan 2009 Fitch had cut the country’s local currency rating to negative from stable on concerns that the country’s fiscal position would worsen.

Malaysia’s fiscal deficit would rise to 5.7% of gross domestic product (GDP) in 2009 and to 7.4% in 2010, from an estimated 4.6% in 2008. Malaysia’s GDP would decelerate sharply to 1.5% in 2009 from an expected 5.5% in 2008.

A country’s credit score is also called sovereign credit rating. And there are two categories of sovereign credit ratings - one applies to the country’s local-currency denominated debts, while the other applies to the country’s foreign currency debts, or global bonds.

A sovereign credit rating indicates the risk level of investing in the debts issued by that particular country. So, the rating also determines the country’s ability to borrow money and the level of interest it needs to pay. The stronger a country’s credit rating, the easier it is to attract investment capital and the lower the funding cost (lower interest rate).

In the case of Malaysia, Fitch Ratings recently (Feb 2009) revised its outlook for the country’s long-term local currency issuer default rating, which applies to ringgit-denominated debts, from “stable” to “negative”. The rating for this particular instrument by the agency, however, remains at a strong “A+”.

Standard & Poor’s Fund Management Ratings (S&P) and Moody’s Investor Service, on the other hand, have reaffirmed a “stable” outlook for Malaysia’s long-term ringgit-denominated debts, with ratings at “A+” and “A3”, respectively. (Moody’s “A3” rating is equivalent to an “A-”.)

As for Malaysia’s long-term foreign currency debts, these agencies have reaffirmed their ratings at “A-” and its equivalent, with a “stable” outlook.

S&P director of sovereign rating for Asia Pacific Takahira Ogawa said that his agency has yet to see any strong justifications to change Malaysia’s sovereign ratings. But it monitors the country’s progress every day.

They do not move ratings based on economic growth... sovereign ratings are about repayment risk.

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