Depreciation of ringgit has limited impact on Malaysia's sovereign ratings

KUALA LUMPUR: The sharp depreciation of the ringgit, which has fallen about 11% against the US dollar in the past six months, has “limited impact” on Malaysia’s sovereign ratings, said rating agency Moody’s Investors Service. This is because 97% of the Government debt is denominated in ringgit.

"Currency depreciation has relatively limited impact on Malaysia’s sovereign rating, because of the Malaysian Government debt structure, which is primarily in ringgit," said Moody’s Vice President-Senior Analyst of Sovereign Risk Group Christian de Guzman.

De Guzman was speaking to reporters at a media briefing on Moody’s 2015 Outlook for Malaysian Sovereign, Banks and Corporates yesterday.

He explained that countries such as Indonesia and the Philippines had more exposure to foreign-dominated debt paper, which accounted for about 40% of their Government debt, and would face a higher impact in local currency depreciation.

At present, the Government debt-to-gross domestic product (GDP) ratio for Malaysia is at 53%, slightly below the 55% ceiling, which isghest in Asia.

Trailing closely behind is South Korea at 86%, followed by Thailand at 84% and Taiwan at 82%. The debt-to-GDP ratio indicates a country’s capability to repay debt, or in other words, is the financial leverage of an economy.

Last week, Moody’s had affirmed Malaysia’s bond and issuer rating at A3 with a positive outlook, driven by fiscal reforms and the strength of its fundamental credit strength.

The rating agency pointed out that its negative outlook for Malaysia, whose A- rating it had affirmed on July 23, “reflects the erosion of its current account surplus amid large public-sector deficits and a drop in oil prices”.

De Guzman said that Malaysia’s economic fundamentals remained intact, despite several headwinds such as lower oil prices, the depreciation of the ringgit and capital flights.

He added that the Government had also set in place the necessary infrastructure to implement the goods and services tax in April to diversify its revenue, especially in the current low-oil price environment.

Source: MIDA website