Yesterday, Fitch Ratings downgraded Malaysia’s credit rating to BBB+ from A-, citing the economic impact of the Covid-19 pandemic and the political uncertainty as two main reasons. The weaker-than-hoped Budget 2021 presented a few weeks ago is fiscally too conservative precisely to avoid this. Ironically, Fitch believes the budget deficit targets (6% this year, 5.4% in 2021) to be realistic, but nevertheless decided to issue a downgrade.
We now find ourselves in the worst-case scenario. The announced budget is too timid to ensure a strong recovery, and due to the downgrade our borrowing costs will go up regardless, constraining our ability to invest in the economy and create greater prosperity for all Malaysians.
It was clear all along that this budget cycle would require unconventional thinking, given the high economic cost of the pandemic. The budget should have focused solely on doing what was right for our economy, instead of trying to abide by the opaque and arbitrary rules of the rating agencies. That opportunity was missed, and ordinary Malaysians now risk being left to pay the price.
To all Malaysians who created the GE14 miracle, keep fighting. We will be back stronger.