PETALING JAYA: The political uncertainties are weighing on private investment and could pose downside risks to Malaysia’s credit profile if the new government changes the policy emphasis away from fiscal consolidation and institutional reforms, said Moody’s Investors Services.
And now, the rating agency is expecting the country’s gross domestic product (GDP) growth to slow to 4.2% this year from a 10-year low of 4.3% in 2019.
This is accompanied by the threat from ongoing global trade tensions and the coronavirus outbreak.
Malaysia’s private investment grew 4.2% in Q4 2019 against 0.3% in Q3 2019.
Meanwhile, Fitch Solutions believes meaningful fiscal measures to support the economy will be significantly delayed.
“Malaysia’s situation in this regard is in stark contrast from most other Asian economies which have moved relatively quickly to announce and implement additional spending, such as China, Taiwan, Hong Kong, Singapore and Thailand,” it said in a note yesterday.
It also noted that the dissolution of the Cabinet following the resignation of Tun Dr Mahathir Mohamad as prime minister and Parti Pribumi Bersatu Malaysia (PPBM) chairman will hinder the country’s efforts to respond to the Covid-19 outbreak.
“Our core view is for the formation of a new government to proceed, but in either case, the country is left without much needed leadership amid a slowing economy that must deal with the global outbreak of Covid-19,” it said in a report yesterday.
It lowered Malaysia’s short term political risk score to 69.8 (out of 100) from 72.5 previously, to reflect the risks to social stability, policymaking and policy continuity.
Fitch Solutions expects the economy to be weighed down further in the short term due to paralysis in government, posing downside risks to our already bearish revision of GDP growth in 2020 to 3.7% from 4.5% previously.
“Uncertainty in policymaking also bodes ill for Malaysia’s ability to react to any new developments in the fast-moving Covid-19 pandemic, which has already infected at least 22 people in Malaysia as of Feb 24, raising the risks of a large and sustained outbreak in the country,” it said.
Fitch Solutions added that it sees increasing downside risks to Malaysia’s long-term growth prospects as a result of political uncertainty and increasing polarisation.
