July 27, 2015 / 10:57 AM / in 4 years

UPDATE 1-S&P keeps Malaysia's A- sovereign rating, outlook stable

* S&P affirms L-T foreign currency rating at A-, outlook stable

* Graft allegations involving 1MDB won’t impede policymaking - S&P

* M’sia’s strong external position to help counter energy slowdown (Adds details from S&P statement, economist quotes)

By Trinna Leong

KUALA LUMPUR, July 27 (Reuters) - Standard & Poor’s kept Malaysia’s long-term foreign currency sovereign credit rating at A- with a “stable” outlook, saying allegations of graft involving debt-laden state fund 1Malaysia Development Berhad (1MDB) will not impede policymaking.

The agency also said it does not see the decline in energy prices affecting Malaysia’s long-term fiscal consolidation.

“The country’s strong external position and fairly diverse economy can absorb some weakness in the oil and gas sector,” S&P said in a statement on Monday.

The agency last revised lower Malaysia’s outlook in 2008 while the country’s rating has been kept at A- since 2003.

S&P’s announcement comes on the back of Fitch Ratings decision earlier this month to revise its Malaysia outlook to “stable”.

Although the major oil and gas exporter saw its revenues hit by lower energy and commodity prices earlier this year, S&P said the country’s strong external position “can withstand a slowdown in the oil and gas sector over the next two years”.

S&P’s decision was widely expected and economists said the move was positive and reflects the government’s efforts to better manage its economy.

“Combining S&P and Fitch’s statements together, it is reinforcing our view that as long as the fiscal reform momentum is intact and there’s no change in the regime, we’ll continue to see statements supportive of the sovereign rating,” said Euben Paracuelles, economist at Nomura Holdings.

The Malaysian ringgit slid to a 17-year low on Monday as it extended declines, making it the worst performing emerging Asian currency this year.

However, S&P said that the weak ringgit would help “boost exports of manufactured goods, and partly offset the impact of lower oil prices in Malaysia’s energy exports”.

The country’s reserves have fallen $31.5 billion since September 2014, when oil and gas prices, and the ringgit, started to weaken.

RIGHT TRACK

S&P said Malaysia was on the right track after the government embarked on fiscal consolidation. Malaysia axed fuel subsidies in December 2014 and introduced a consumption tax in April this year to ease its debt burden.

The ratings agency said the country’s public debt had contingent risks, including a $3 billion “letter of support” for 1MDB from the government, but added it did not believe such contingent liabilities would materialise significantly.

Investment fund 1MDB has debts of more than $11 billion and is under investigation from state authorities following allegations of graft and financial mismanagement. (Editing by Jacqueline Wong)

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