Earlier, Fitch Ratings said that it has put Malaysia on a possible downgrade outlook. One of the reason stated was 1MDB. Read here: 1MDB is “manageable risk” – Fitch Ratings According to someone I respect a lot, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz, this is questionable. The reason is because of Malaysia’s current strong fundamentals. Compared to peers, we are at least as good or even better in terms of growth prospects. We have a solid financial system, our fiscal position had shown a track record of reduction in deficit and our external debt is relatively low compared with some of our peers. Thus, her question to Fitch Ratings, “what has been the basis of that outlook?” (downgrade outlook)
She explained further than on fiscal position, subsidy rationalisation has been put in place to strengthen it. In fact this had generated savings of more than RM20 billion. This is on top of the implementation of the Goods and Services Tax (GST). This GST has moderated spending somewhat but this has also been cushioned by the lower oil price. (Lower oil price meant people have more savings compared to when petrol price was much higher. This savings would most probably be spent and this is why she said this is the cushion for the moderation in spending.) Besides these two, the country’s current reliance on oil and gas revenue which currently stood at 30 percent is gradually being reduced.
Whether readers agree or disagree with Zeti, please take note of the current strong position in the financial sector. These can be easily googled and searched. In terms of fears of GST, I seriously think this is totally overblown. Malaysia cannot continue to rely on current tax structure where the minority is supporting the whole country’s population. This was the major reason why ratings downgrade were mentioned many years ago. Everyone wanted income tax to be lowered but without any tax rationalisation programmes, there is certainly no way for this to be reduced further. I really look forward to the next action from the three major ratings agencies of the world when they assess Malaysia again in the near future. I hope I am right. 🙂
written on 27 Apr 2015
Next suggested article: Ringgit down, Ratings stay – Moody’s.
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