2010.07.0809:47:00UTC+00Fitch Retains Malaysia's Ratings, Warns Against Weak Public Finances

Fitch ratings maintained Malaysia's long-term foreign currency issuer default rating, or IDR, at 'A-' with a stable outlook on Thursday, while cautioning that the country's weak fiscal position will continue to weigh on the ratings.

The agency also retained the long-term local currency IDR at 'A' with a stable outlook, the short-term foreign currency IDR at 'F2' and the country ceiling at 'A'. "The deterioration in Malaysia's public finances that motivated the local-currency rating downgrade in 2009 looks unlikely to be unwound soon," said Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch.

"However, resumed economic growth will help stabilize public debt ratios and support the stable outlook on the ratings," Fitch noted. The agency also observed that Malaysia's fiscal revenue base remains relatively weak, with federal revenues at 22.7% of GDP in 2009, against a 10-year average for the 'A' range of 34%. Furthermore, fiscal dependence on the energy sector is high and rising, while the introduction of a goods and services tax, which could strengthen the revenue base, has been postponed into 2011.

Fitch projects Malaysia's federal government debt to reach 54.4% of GDP by end-2010, up from 41.4% at end-2008 and well above the 'A' median of 40%. The federal deficit is expected to narrow only moderately to 6% in 2010 from 7.6% last year. A faster-than-expected fiscal consolidation which puts the government debt ratios on a sustainable downwards path, along with measures to strengthen the fiscal revenue base, would exert upward pressure on the ratings, Fitch said.

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