'On right track to boost economy' - MIDA | Malaysian Investment Development Authority
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‘On right track to boost economy’

‘On right track to boost economy’

31 Jan 2021

Moody’s Investors Service’s reaffirmation of Malaysia’s sovereign rating is testimony to the government’s strong fiscal discipline and the country’s growth prospects amid the Covid-19 pandemic, economists said.

Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff said the decision by Moody’s to maintain Malaysia’s A3 rating with a stable outlook was a confirmation that the government was on the right track to boost the economy into positive growth this year.

Razman said the government’s continuous effort since the beginning of the year to address the economic crisis caused by the pandemic was clear by the introduction of five economic stimulus packages worth RM305 billion last year, on top of RM322.5 billion allocated under the 2021 Budget.

“Such commitment continued this year with the launch of the latest package Permai worth RM15 billion which involves mainly direct fiscal injection initiatives such as Bantuan Prihatin Nasional (BPN) 2.0, Bantuan Prihatin Rakyat (BPR), Wage Subsidy Programme (PSU) and Prihatin Special Grant.

“Such direct fiscal injection has been proven in the past to be effective in increasing liquidity and business transactions in the market,” he said.

Razman said another plus point for the government was the efficiency of distribution of such financial assistance which had been highlighted by the Economic Stimulus Implementation & Coordination Unit Between National Agencies (Laksana) unit recently.

“This will definitely improve the confidence among the rakyat and businesses especially when the government continuously keeps improving the scope and method of some of the stimulus such as wider scope for PSU and advance payment under the i-Sinar program,” he added.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the Moody’s assesment suggested that the credit rating agencies were very subjective and differed from one to the other.

Afzanizam said in the case of Moody’s, it had recognised that the pandemic was not expected to have a long-lasting effect and the huge savings would allow some flexibility for the government to tap the local capital markets for funding.

“They have kept the rating at A3 with a stable outlook. This suggests the rating should remain unchanged in the next 12 months.

“However, their concern remains on the debt level and the widening of fiscal deficits. Hence, the government should address this issue once the pandemic has been fully resolved,” he said.

Moody’s, in a statement on Jan 28, said the rating affirmation was based on its expectation that Malaysia’s medium-term growth prospects would remain strong.

This was underpinned by the country’s diversified and competitive economy and supportive demographics, while its macroeconomic policymaking institutions would continue to be credible and effective, which provides resilience to the sovereign credit profile.

These strengths it outlined are balanced against the government’s relatively high and increased debt burden, which will leave the government with weakened fiscal strength for some time in the aftermath of the pandemic shock to public finances.

Moody’s also said it did not expect the pandemic to have a sustained negative impact on Malaysia’s economic model.

It expects Malaysia’s economy to rebound to around six per cent this year after last year’s sharp contraction.

Beyond 2021, Moody’s expects the economy to grow at a strong average of 5.0-5.5 per cent over 2022-2023.

This is higher than the median of 3.4 per cent over the same period for similarly rated peers, on the assumption that the government can effectively curb the spread of the virus.

Source: NST