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S&P Maintains M’sia’s Credit Rating On Strong External Position

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KUALA LUMPUR: Standard & Poor’s Financial Services LLC (S&P) has affirmed Malaysia’s short-term foreign currency sovereign credit rating at ‘A-2’ and its long-term rating at ‘A-’, with a stable outlook on the long-term rating, as it expects the fall in oil prices will not disrupt Malaysia’s long-term fiscal consolidation.

“We believe the economy can withstand some weakness in the energy sector owing to its fairly diversified and broad-based growth,” said S&P in a statement today.

Based on that rationale, it also affirmed its long-term ‘A’ and short-term ‘A-1’ local currency ratings on Malaysia, as well as its ‘axAAA/axA-1+’ ASEAN regional scale rating on Malaysia.

“In our view, the decline in oil prices has a moderate negative impact on Malaysia’s fiscal position, given that government revenue has a high dependence on the energy sector,” said S&P.

“However, we believe the decline in oil prices will not derail Malaysia’s long-term fiscal consolidation efforts. The country’s strong external position can absorb some weakness in the oil and gas sector,” it added.

S&P also commended the Malaysian government for having been proactive in mitigating the fallout of the slump in oil prices.

“In its revised budget for 2015 announced on January 20, the government implemented various measures to ensure that fiscal consolidation efforts remain on track,” S&P noted.

Therefore, it expects the government to maintain its long-term target to balance the federal budget by 2020.

“Malaysia’s strong external position, a result of years of current account surpluses, underpins the ratings,” the agency stressed.

“The net external asset position turned negative in 2012 due to a decline in foreign reserves.

However, external indicators are likely to remain close to current levels on account of our expectation that Malaysia will have healthy trade surpluses over the next two to three years,” it added.

S&P also noted that Malaysia has a high degree of monetary flexibility, and that its central bank’s track record in controlling inflation indicates strong monetary flexibility that attenuates major economic shocks.

“Malaysia also has a deep domestic bond market, compared with most of its peers, which reduces its reliance on external financing,” it added.-The Edge

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