Standard & Poor’s rating for Malaysia, subsidy and competitiveness

There are only a few international rating agencies in the world. These rating agencies help investors decided where to invest their money and understand the risks in certain countries with weaker economic fundamentals. Today, we look Standard & Poor’s (S&P) Ratings Services which has recently given their assessment about Malaysia. This report was released end July and was reported in many major dailies in Malaysia. This would be the report card of Malaysia currently as well as a prediction of what the future may hold for Malaysia.

S&P has affirmed Malaysia’s foreign currency sovereign credit rating at “A-” for long-term and “A-2” for short-term based on the country’s strong external balance sheet and considerable monetary flexibility. Besides that, it has also affirmed its “A” for long-term and “A-1” for short-term local currency sovereign rating credit rating. These are supported by the moderate fiscal deficits and government debt burden. It is also positive on the policymaking in Malaysia saying that it has been generally effective and institutions have remained stable since the 2013 elections. It also like the GST introduction in 2015 saying that it will help fiscal consolidation. Overall, S&P said many positive things about Malaysia and said that if the Malaysian government continues to rein in expenditures, particularly subsidies as well as stronger economic growth, then the ratings may be raised.

However, the following will cause ratings to drop. They are the slowing down of reforms, such as delaying the GST and failure to reduce subsidies, reducing private investments or failure to diversify the economy further. I think these are very clear explanations. The government has to continue doing the right things and manage the fallout, for example the continuous reduction of petrol subsidies or the increase in electricity tariffs which are unavoidable.

Personally, I do not believe in everyone getting the same subsidy. The poorer ones needing help should be assisted more while the richer ones who can afford should get less. For example, petrol subsidy, there’s just no reason why someone driving a much bigger engine capacity car than me should enjoy more of the subsidy while I enjoy less. Please do not tell me that drivers of bigger cars deserve bigger subsidies. I disagree. If you indeed could not afford to pay for the petrol, then you should buy a smaller car instead. I think every financial guru in the world would teach about ‘living within your means’. Yes, I do realise that lesser subsidies may also affect me but just like the cooling measures which has cooled down the market tremendously making it harder to build bubbles, I think competitiveness of a nation does not come from subsidies but how best limited resources can be utilised.

written on 20 Aug 2014

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