KUALA LUMPUR: Standard & Poor's (S&P's) says it will maintain the stable sovereign rating for Malaysia for the next two years with its fiscal consolidation programme in place.
The rating agency, which affirmed its sovereign rating at "A-Stable/A-2", was concerned with the rising government debt in recent years.
"But in the near term of one to two years, we don't see this happening," said S&P's credit analyst Kim Eng Tan at a media briefing here yesterday.
The Federal Government's deficit is estimated to have declined to about 4.5 per cent of gross domestic product (GDP) in 2012 from 4.8 per cent in 2011, while the debt is estimated to have risen to about 53 per cent at end-2012 from about 52 percent in 2011.
Government debt has been rising in recent years but if the deficit is cut down in the next few years, the risk of debt being an issue for sovereign rating will not be " high" , he said.
However, if the large deficit of recent years continues, the net debt ratio for the government will come to a point when S&P's may start assessing a weaker support for ratings.
"At the end of the day, we are looking at the fiscal position of the government debt and that involves two big measures - on the revenue front, if you can raise the Goods and Services Tax (GST) to cover the expenditure and, on the other hand, if you cut subsidies and lower spending - that would be good for the fiscal balance (and less pressure on the rating)."
Kim expects another subsidy rationalisation scheme post-general election as there is greater clarity of the government with uncertainties removed, leading to an improved economic story.
"The Malaysian economy is still enjoying high growth and budgetary spending pressures are structurally not that pressing. The government has the flexibility to improve the fiscal performance, although that may cause unhappiness in certain segments of the population."
Implementation of the plans is crucial, he said.
S&P's managing director for Asean, Surinder Kathpalia, said one of the commitments of the rating service company in Malaysia is to connect its national bond market with the region.
"Malaysia was a poster child for bond market development across emerging markets. It has done exceptionally well - it has a terrific market infrastructure with all the mechanisms like bond pricing agency, predictable legal framework, deep savings pool, pipeline of Malaysian issuers and the country has also done exceptionally well with Islamic finance."
Likewise, with two-thirds of global Islamic finance in Malaysia, the challenge is to connect Malaysian Islamic finance with the petro-dollar and deep pool of capital in the GCC (Gulf Cooperation Council), which has invested in Asia through US dollars and not in the ringgit market.
S&P's had given Sime Darby Bhd's US$1.5 billion (RM4.5 billion) multi-currency sukuk an "A" rating.
Kathpalia also explained that the Asean regional rating scale was in part a response to regional policymakers' desire to look for private sector mechanism that will help them to tackle challenges, which includes tapping the high savings in intra-Asean investments.
Meanwhile, at the Asean Capital Markets seminar organised by S&P's, participants were informed that the percentage of foreign investors has shrunk to five per cent from 10 per cent to 15 per cent before the crisis due to the aggressiveness of Malaysians, according to Cagamas Bhd (Malaysia) senior vice-president Angus Salim Amran.
With the bond market being more mature now, there is a need to look for currencies other than the ringgit, he said.
CIMB Principal Asset Management deputy chief executive officer Munirah Khairuddin said the main challenge last year was that there were not enough papers and yields that would come off.
She described 2013 as an equities year compared to 2012, which was more focused on fixed-income, and the former already has many investors, both domestic and foreign, waiting on the sidelines.
Managing director and S&P Middle East head Stuart Anderson said there has been keen interest in the wealth funds, real estate and private equities in Asia but the investing community is seeking greater transparency and some benchmark that they can relate to.