RTTNews - Tuesday, Fitch Ratings lowered Malaysia's local currency Issuer Default Rating to 'A' from 'A+' and revised its outlook to stable from negative. The firm also affirmed the country's long-term foreign currency IDR at 'A minus', the short-term IDR at 'F2' and Country Ceiling at 'A'. The outlooks on these ratings remain stable.

Fitch's rating action on Malaysia's Long-term local currency IDR reflects the sovereign's notable deterioration in its public finances position when measured against the 'A'-rated peer group, Ai Ling Ngiam, director with Fitch's Asia-Pacific Sovereigns team said.

The firm forecasts the central government's debt to rise to a 22-year high of 7.5% of GDP this year and 8.7% next year. Moreover, Fitch expects the general government deficit to widen to 7.7% of GDP this year, almost double the median 4% of 'A' rated peers. In the next year, Fitch forecasts the general government deficit to hit 57% of GDP, the highest since 1992, and also higher than the median debt of 49% of GDP of the 'A' rated peers.

The revenue/GDP ratio stood at 21.6% last year, lower than the 35% of 'A' rated peers.Of concern is the further fall in forecasted revenue from 22.4% in 2009 to 19% in 2010, as collections from favorable commodity prices and higher oil prices are affected with a one-year time lag on petroleum income taxes, duties, royalties and dividends, Fitch said.

Against this backdrop, the firm estimates the government's planned net operating and development expenditure to be 29.9% of GDP this year, the highest since 1987.

Regarding the government's primary deficit, Ngiam said, By 2010, Malaysia's general government primary deficit of minus 6.4% GDP will be amongst the worst in all Fitch-rated sovereigns after only Latvia, Bahrain, Ireland and Vietnam.

Malaysia's public debt dynamics remain vulnerable to a sharp economic downturn or a rise in interest rates, the firm added.

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