Fitch: Malaysia outlook positive

Fitch Ratings said it has revised the outlook on the Federation of Malaysia's long-term foreign and local currency ratings to positive from stable, reflecting diminishing political transition risks following the recent landslide election victory by United Malays National Organisation and the National Front coalition.

The long-term foreign and local currency ratings are BBB+ and A, respectively, and the short-term foreign currency rating is F2.

Fitch said the strength of support received by the ruling Barisan National coalition and Prime Minister Abdullah Badawi's UMNO in recent elections has substantially buttressed the Prime Minister's position within UMNO and more or less rules out the possibility of any major threat to his leadership when UMNO conducts internal elections later this year. This helps cement the smooth transition of power following 22 years of rule under Mahatir and mitigates political uncertainties that had previously been seen by Fitch as an important constraint on Malaysia's sovereign creditworthiness.

In particular, gains made by UMNO at the expense of the opposition Islamic fundamentalist Pan Islamic Malaysia Party leave Prime Minister Badawi much better placed to forge his own policy agenda without undue concern for preceding power structures.

However, Fitch said Malaysia's fiscal performance continues to constrain its sovereign ratings. The federal government recorded a deficit of 5.4% of GDP in 2003, down only marginally from 5.6% of GDP in 2002, despite a significant pick up in GDP growth.

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