LETTER FROM THE RAKYAT
The Fitch rating that upgraded our “outlook on the long term issuer default rating” to “stable” from “negative” previously is a relief indeed and quite gratifying.
The government, Treasury, Economic Planning Unit and Bank Negara must feel considerable joy and some sense of achievement in managing to persuade Fitch to give a positive grading.
This rating is especially significant as Fitch had threatened to downgrade Malaysia in its earlier assessment.
However, we should be cautiously optimistic and not be overjoyed as Fitch has actually warned that although we have improved in our economic management, we still have some “weaknesses” to address.
We should, therefore, continue to manage these weaknesses more effectively, as we are just above water in our macro indicators. Fitch shows that we are marginally better off, but definitely not completely out of the woods.
The economic and fiscal margins for manoeuvring and management are still too narrow for real confidence and comfort to consumers and investors.
For instance, Fitch clearly states that “Malaysia`s fiscal position continues to remain weak, as measured against the ‘A’ median rating”.
Government debt, as a share of Gross Domestic Product (GDP) at the end of 2014, was 53.9%, which is still above the “A” median of 47.2%.
Budget deficit has fallen from 4.6% of GDP to 3.8% in 2014. This is creditable, but we have to ensure we keep it lower, despite the many claims, with the elections not far away.
The balance of payments current surpluses continue to decline as the ringgit falls. Our exports don`t rise fast enough, while our import prices rise higher.
We are not well above and beyond “safety margins”. Hence, any unforeseen contingencies can upset the apple cart and our calculations and confidence.
Fitch thinks “that there is a high probability that sovereign support for 1MDB would be forthcoming, if needed”. This can add to the uncertainties and cause more strain on the budget and the economy.
We have to recognise more and more that we live in globally uncertain times. Thus, we would need to perform better, have stronger leadership and become more competitive and less corrupt to remain on an even and steady keel and move forward.
In short, we need more structural reform to ensure sustainability and continuing good ratings from Fitch and other international rating agencies.
Most importantly, we need more domestic and international confidence in our longer-term socio-economic and political outlook and resilience.
Let’s not forget that our lower national unity and rising racial and religious bigotry would also undermine our national and international confidence — and indeed our global ratings.
TAN SRI RAMON NAVARATNAM
Chairman, Center of Public Policy Studies, Asli