Malaysia drops behind Philippines in default risk

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Malaysia ringgitDespite being ranked higher by credit rating agencies, the default risk of Malaysia’s government bonds climbed above that of the Philippines for the first time in September 2013, the price for contracts insuring Malaysian bonds shows.

According to data provider Credit Market Analysis (CMA), a member of the Standard & Poor’s group, contracts insuring Malaysian bonds against non-payment rose 63 basis points this year to 141, compared with an advance of 33 to 139 for the Philippines. The 10-year ringgit yield also jumped 16 basis points higher than the rate on similar-maturity Philippine notes.

Fitch Ratings cut its outlook on the nation’s A-rating to negative from stable on July 30. The Philippines won investment-grade status this year from Fitch and Standard & Poor’s after cutting its budget deficit. Malaysia’s ringgit weakened 4.8 per cent so far in the 3rd quarter of 2013, more than the 3.1 per cent loss in the Philippine peso.

Malaysia is more vulnerable to capital outflows than some of its regional peers, partly due to its high reliance on foreign ownership of government debt (up to 50 per cent) and the deterioration in its current account. The ringgit currently faces the most pressure among Asian currencies after the Indian rupee and the Indonesian rupiah.

Malaysia’s budget deficit is likely to be higher than the official forecast of 4 per cent in 2013 even after the recent cut in fuel subsidies. Without additional reforms, the government’s fiscal targets are “increasingly out of reach,” analysts say.

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Reading Time: 1 minute

Despite being ranked higher by credit rating agencies, the default risk of Malaysia’s government bonds climbed above that of the Philippines for the first time in September 2013, the price for contracts insuring Malaysian bonds shows.

Reading Time: 1 minute

Malaysia ringgitDespite being ranked higher by credit rating agencies, the default risk of Malaysia’s government bonds climbed above that of the Philippines for the first time in September 2013, the price for contracts insuring Malaysian bonds shows.

According to data provider Credit Market Analysis (CMA), a member of the Standard & Poor’s group, contracts insuring Malaysian bonds against non-payment rose 63 basis points this year to 141, compared with an advance of 33 to 139 for the Philippines. The 10-year ringgit yield also jumped 16 basis points higher than the rate on similar-maturity Philippine notes.

Fitch Ratings cut its outlook on the nation’s A-rating to negative from stable on July 30. The Philippines won investment-grade status this year from Fitch and Standard & Poor’s after cutting its budget deficit. Malaysia’s ringgit weakened 4.8 per cent so far in the 3rd quarter of 2013, more than the 3.1 per cent loss in the Philippine peso.

Malaysia is more vulnerable to capital outflows than some of its regional peers, partly due to its high reliance on foreign ownership of government debt (up to 50 per cent) and the deterioration in its current account. The ringgit currently faces the most pressure among Asian currencies after the Indian rupee and the Indonesian rupiah.

Malaysia’s budget deficit is likely to be higher than the official forecast of 4 per cent in 2013 even after the recent cut in fuel subsidies. Without additional reforms, the government’s fiscal targets are “increasingly out of reach,” analysts say.

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