Thread by @jalilword

(1) Malaysia gets downgraded from A- to BBB+ . What does this mean? fitchratings.com/research/sover…

(2) What are rating agencies? Rating agencies are third parties who are assigned to analyse a country’s bond and assign ratings. Besides Fitch, two other main rating agencies are; Moody’s & S&P

(3) Why does it matter? Fund managers have mandates in their portfolios which soecifically mentions what bond ratings they are allowed to buy. The higher the rating, the better. As ratings go lower, risk profile increases

(4) What does downgrade do? Typically there will be sell off in capital markets in both bonds & equities (fund managers here may see this as sign that country’s risk profile has increased). Unlikely to affect FDI, but will affect value of Ringgit.

(5) Why was downgrade done? Fitch mentioned several factors, debt increase due to pandemic spending, though it was acknowledged that this was necessary and likely short term. So efforts must be made to consolidate this soon (find revenue streams to plug the gap)

(6) Governance - interestingly this was cited as one of key reasons. When govt is not stable, there is a fear that policies will be populist rather than necessary, and this could drag down governance standards

(7) Why is governance important? It drives behaviour. As a rating agency, an assessment is also being made to the govt’s ability to make decisions. Is there going to be check & balance? Is there going to be will to make difficult decisions? ..

(8) How do we make governance better? Many but I’d focus on following:

(i) Start delinking business & politics and let it be run professionally. This will ensure a continuation should there be future political change

(ii) Transparent tracking of spending, and accountability reporting to what worked & didnt. This will help ensure that future spending is based on data and not shooting blank bullets.

(iii) Having clear articulation of short, medium & longer term economic plan. What is going to be economic driver post Covid? Are we spending in right sectors? Prioritising spending

(iv) Understanding where is future revenue stream coming from? At some point all these pandemic spending money needs to be paid back to bring down debt level.

(9) In summary, the governance part points back to how we are organised (or not); planning, making decisions, explaining decisions, executing policies & tracking success / failure of spending.

(10) In simple terms, improve governance. That’s the concern of the rating agencies. With good governance, it should be accompanied with better policies & execution. People come and go, institutionalised policies always stays