Published March 12, 2009

S&P likely to maintain credit rating for M'sia

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(SINGAPORE) Standard & Poor's (S&P) is likely to maintain Malaysia's credit rating despite a new RM60 billion (S$24.9 billion) plan to fire up its economy, but the ratings firm said it was concerned about the lack of political will in India to keep government finances under control.

Malaysia on Tuesday unveiled the spending in a bid to save jobs and prop up an economy teetering on the edge of recession.

The package, which comes on top of a RM7 billion plan announced in November, could widen Malaysia's budget gap to 7.6 per cent of gross domestic product from 4.8 per cent.

'They have some capacity to allow the budget to weaken in this downturn to an extent that would be consistent with the present rating,' David Beers, S&P's global head for sovereign ratings, told Reuters in an interview yesterday.

He added that the impact on Malaysia's budget may not be as large as it seemed because part of the funding will come from quasi-government agencies.

A sovereign rating is an indicator of a country's financial health and a downgrade could raise the interest rates paid by the government and companies when they borrow money. S&P rates Malaysia A-minus with a stable outlook.

S&P is generally more concerned about a country's ability or willingness to rein in spending once the economic crisis had passed rather than an imminent expansion of the fiscal gap.

'For most governments, the deficits are going to be wider this year but we are not downgrading everybody,' he said.

Mr Beers was less positive on India, saying politicians lacked the will to keep the country's expanding fiscal deficit in check.

'We think the political resolve to stay in favour of fiscal consolidation has weakened,' he said, adding that government spending could rise ahead of elections this year. 'We are not sure that the next government is going to be able to quickly move India back on track.'

S&P last month changed its outlook on India to negative from stable, indicating it was considering a cut in its rating from BBB-minus, which is the lowest investment grade rating.

Based on past practices, there was a one-in-three chance of a ratings cut once it is placed on ratings watch, Mr Beers noted.

Turning to Korea, Mr Beers said he was confident about its financial strength and that he did not believe the country's reserves had been overstated, as feared by some investors. He said the weakness in the won, as well as other currencies such as the pound, did not necessarily signal problems and could be positive in terms of cushioning the impact of the downturn. -- Reuters