Published June 10, 2009

Fitch trims KL's local currency rating

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(KUALA LUMPUR) Malaysia's long-term local currency rating has been cut to A from A-plus by Fitch Ratings due to concerns over the growing budget deficit which it sees at 7.7 per cent of gross domestic product this year.

Fitch yesterday changed its outlook for the debt to stable from negative and said that it was worried about both the deficit and revenue collection.

'By 2010, Malaysia's general government primary deficit of minus 6.4 per cent of gross domestic product will be amongst the worst in all Fitch-rated sovereigns after only Latvia, Bahrain, Ireland and Vietnam,' Fitch said.

Fitch kept the country's long-term foreign currency rating unchanged at A-minus with a stable outlook.

Malaysia has been running steadily increasing budget deficits in recent years and overshot in 2008 announced new spending and loans worth RM67 billion (S$27 billion) over two years to boost domestic demand at a time of falling exports due to the global economic downturn.

Fitch said that the ratio of Malaysia's government revenues as a proportion of gross domestic product was just 21.6 per cent, lower than the 10-year average of 35 per cent for its peers and that ratio will worsen to 19 per cent by 2010, the agency said.

Malaysia is highly dependent on oil, which accounts for 40 per cent of government revenues and there is little chance that the country's unpopular government will widen the revenue, Fitch said. The next elections are due by 2013.

Analysts said that the ratings announcement, which came a few days after Standard & Poor's left its 'A-minus' rating intact, could have an impact on the central bank's rate-setting policy. -- Reuters