The Essential :Fitch Ratings downgraded Malaysia's credit outlook to NEGATIVE.

On the recent decision made by +Fitch Ratings to downgrade Malaysia's credit outlook to negative have made the Ringgit down to RM3.20 range against the greenback, so far. Bloomberg reported that the currency dropped to the three year low and 10-year bond yield climbed to the highest since January 2011. 

Fitch said that the cut is primarily due to Malaysia's public finance especially after the general election. The budget deficit widened from 3.8 percent in 2011 to 4.7 percent of GDP in 2012. The increase of 0.9 percent is closely related to the spending on public wages ahead of the May election, according to Fitch.

You can re-visit my previous posting on how rating agencies could influence the credit-worthiness of one economy here 'The story of ratings agency' and my slides...

                

          Negative Credit Ratings for Malaysia from Azuan Muda

S&P and other credit agencies, although reaffirmed their outlook, are playing wait-and-see game. They are eyeing for more macroeconomic measure from Malaysia government to reduce the fiscal deficit. 

We could expect some direct measures like subsidy rationalization, tax implementation (Goods and Service Tax) and boosting private sectors investment from the government. Having said that, the transformation program that is in the may provide a quick affirmation on seriousness of the government on fiscal reform. 

The key takeaway is debt is widen. 

The question is, is it enough? They have a few months before the tabling of Budget 2014 in October this year.