While the government has tweaked Budget 2015 by trimming its operating expenditure by RM5.5 billion, international rating agency Fitch Ratings<\/a><\/span> on Jan 21 said it would still maintain its \u2018negative\u2019 outlook on Malaysia\u2019s long-term issuer default ratings, adding that it was more likely than not to downgrade the country\u2019s ratings within the next 12 to 18 months.<\/p>\n Fitch also noted that the possibility of twin fiscal and current account deficits \u201cwill remain a rating sensitivity for Malaysia\u201d. A rating downgrade typically results in a flight of capital from a country, which will then have a weakening effect on its currency.<\/p>\n However, Lye noted that the risk of a downgrade is minimal at this point, so long as the fiscal deficit is kept under the 3.5% of the gross domestic product (GDP) mark.<\/p>\n \u201cI think Malaysia will still run a small current account surplus, provided that oil prices do not trade below US$50 on average for the whole year and crude palm oil (CPO) doesn\u2019t drop below RM2,000 per tonne,\u201d said Lye.<\/p>\n Eastspring Investments Bhd<\/a><\/span> chief investment officer of equities Yvonne Tan warned that cutting development expenditure would be unwise due to its implications on economic growth.<\/p>\n \u201cI don\u2019t like the idea of cutting development expenditure. Unless the underlying growth and consumption are strong, doing so will result in a lower-than-expected GDP growth. If that risk [materialises], the percentage of budget deficit [target] will have to be reworked,\u201d she said.<\/p>\n According to the government, the RM5.5 billion savings would come from Budget 2015\u2019s operational expenditure that was initially set at RM223.4 billion, while the RM48.5 billion for development spending would remain untouched.<\/p>\n Nevertheless, Tan was \u201cquite cautious\u201d on whether the government would successfully cut its operating expenditure as planned in the budget revisions announced by Prime Minister Datuk Seri Najib Razak.<\/p>\n Lye and Tan were among seven speakers at the talk on Saturday. The others were Hong Leong Bank Bhd<\/a><\/span> ( The session was moderated by The Edge Media Group publisher and group CEO Ho Kay Tat, who opined that the combination of high household debt, falling commodities prices, outflow of funds and a weakening ringgit has cast concerns over the ability of the central bank and the federal government to manoeuvre the country out of its current macroeconomic situation.<\/p>\n \u201cWe are caught between a rock and a hard place as both fiscal and monetary policies are facing constraints,\u201d said Ho.<\/p>\n Hong Leong Bank\u2019s Hor concurred with Ho\u2019s sentiment.<\/p>\n \u201cThe government has a fiscal deficit target of 3.2% \u2014 they can\u2019t spend too much more to pump prime the economy. A lot of the levers that are available to us are starting to come down,\u201d he said, adding that Malaysians will need to adjust their mindset to a period of slower growth ahead.<\/p>\n \u201cMany people think that [growth rates] are going to zoom back up to the 6%-7% levels, but many Asian economies are potentially heading towards 2%-4% growth, which, somehow in Malaysia, we don\u2019t seem to be used to,\u201d said Hor.<\/p>\n He added that this was a \u201cmulti-year view\u201d and that slower growth \u201cisn\u2019t necessarily a bad thing\u201d.<\/p>\n Eastspring Investments\u2019 Tan agreed that commodity prices are a key factor. \u201cThe impact is actually quite big if oil prices stay at the current level. If we don\u2019t further cut our budget, the budget deficit will go to 3.4%, as there is a 0.2% change [in the budget deficit] for every US$5 per barrel drop in oil prices,\u201d she said.<\/p>\n She noted that Malaysia\u2019s dependency on the export of liquefied natural gas (LNG) was also a concern.<\/p>\n \u201cIf oil price continues to be weak for a prolonged period, there is a negative impact on LNG price and the LNG price will adjust. With all that supply coming out, I\u2019m not optimistic about the scenario I\u2019m looking at,\u201d she further added.<\/p>\n On the expected interest rate hike in the US, Schroder Investment\u2019s Kalra said the markets are \u201cmuch better prepared\u201d for the hike and that Asia is unlikely to experience a shock to its markets as seen in May 2013, when interest rates rose sharply and caused a panic in financial markets worldwide.<\/p>\n <\/p>\n This article first appeared in The Edge Financial Daily<\/em>, on January 26, 2015.<\/p>\n","protected":false},"excerpt":{"rendered":" KUALA LUMPUR: While a cut in development spending seems remote for now, a further fall in commodity prices could force the government to consider doing so, especially with a possible credit rating cut looming in the background. \u201cIt all depends on commodity prices. If commodity prices fall further and Malaysia takes a proactive stance, the …<\/p>\n![\"\"](\"http:\/\/edgemarkets-fl.s3.amazonaws.com\/img\/stock.png\")
Financial Dashboard<\/a><\/span>) global markets chief operating officer Hor Kwok Wai, Schroder Investment Management Ltd\u2019s head of product for Asia Pacific Showbhik Kalra, Franklin Templeton Asset Management (M) Sdn Bhd<\/a><\/span>country head Sandeep Singh, CIMB Principal Asset Management (S) Pte Ltd<\/a><\/span> chief executive officer (CEO) for regional head of equities Ken Goh and Nikko Asset Management Co Ltd head of equity Takashi Maruyama.<\/p>\n