Najib Spending Binge Could Risk Downgrade Without Revenue Boost (Source: Bloomberg)
Malaysian Prime Minister Najib Razak’s record spending binge, aimed at shoring up support before elections as early as next month, may risk the country’s first credit-rating downgrade since the Asian financial crisis. Standard & Poor’s “might have to think about” a potential cut in a few years unless the next government enacts measures to boost revenue and reduce subsidies after the vote, Takahira Ogawa, an analyst at the rating company, said in an interview. Moody’s Investors Service and Fitch Ratings also said Malaysia must take steps to bring down its debt-to-GDP ratio, which the International Monetary Fund projects may climb to a 20-year high of 55.9 percent this year.
Najib, 58, has raised civil servant salaries and pensions, waived school fees and boosted handouts for the poor in a bid to extend the ruling party’s 55-year lock on power. His National Front coalition won its lowest-ever share of the vote in 2008, and failure to secure a clear mandate may lead to political gridlock that would impede plans to strengthen public finances. “Elections have delayed the required policy adjustments and aggravated the fiscal situation as populist policies take center stage,” said Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore. “Not going through with structural reforms, including introducing a broad-based consumption tax and reducing fuel subsidies, will eventually hurt Malaysia’s credit standing.”
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