S&P: Malaysia ratings hinge on fiscal stance

Standard & Poor's said it is evaluating the impact that Malaysia's (foreign currency A-/stable/A-2, local currency A+/stable/A-1) recent hike in government employee salaries will have on the sovereign's fiscal position.

On May 21, the Malaysian government announced pay increases of 7.5%-35.0% for more than 1 million of its employees, according to S&P, which added that the increases, which will take effect on July 1, are expected to cost the government 8 billion Malaysian ringgits annually, 1.5% of GDP.

The agency noted that the government has indicated that it would not borrow to finance this spending and will instead rely on an expected increase in operating revenues.

S&P said it expects such additional income to be generated from higher oil revenues and dividend payments by public enterprises and from cuts in subsidies.

According to the agency, Malaysia's fiscal position is the weak element of its credit profile. Although the general government deficit has declined steadily to 3.4% of GDP in 2007 from 5.1% in 2003, this ratio remains above the current median of 0.5% for A rated sovereigns.

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