Economic recovery depends on effective vaccine rollout – Fitch

 

Fitch Ratings has cited Malaysia's upcoming Covid-19 vaccination program as the main factor that would influence its economic outlook for 2021 and 2022.

The international rating agency said the stimulus package announced by the government on Jan 18 has not significantly changed its views on Malaysia's sovereign credit profile, and it is maintaining its 'BBB+ Stable' outlook following its downgrade last month.

It also viewed the government's 2021 fiscal deficit target of 5.4 percent of the gross domestic product as achievable.

"As in many countries, the main risk to Malaysia's growth outlook - both in 2021 and 2022 - is the timeline and efficacy of the vaccination programme.

"We assume that the authorities will start vaccinating in March, and inoculate enough of the population by early 2022 that they will be able to relax the vast majority of pandemic-related restrictions," it added.

For the record, Malaysia's National Covid-19 Immunisation Programme is expected to roll out the first vaccinations in March and take 18 months to immunise at least 70 percent of the population to achieve herd immunity against the disease.

Details of the plan are still being finalised. The country has allocated RM3 billion to procure and deploy the vaccines.

Meanwhile, Fitch said the second movement control order (MCO 2.0) is also expected to dampen Malaysia's economic recovery, but as with other countries, the successive imposition of lockdowns is having a weaker impact on economic activity.

"Nonetheless, the ultimate impact of the lockdowns will depend on how long they are maintained, whether they are extended to other regions and whether controls are tightened.

"These factors will be influenced by how effective the measures are in containing new Covid-19 cases," it said.

The MCO 2.0 began in some states on Jan 13 before being extended to most of the country. It is slated to expire on Feb 4.

According to the Health Ministry's website, Covid-19's infectivity (as measured by its effective reproduction number, Rt) as of Jan 25 is 1.04, compared to 1.08 on Jan 23.

Any number higher than 1.00 indicates an outbreak that is still growing. The Rt for Covid-19 if no preventive measures are taken is estimated to be around 3.6.

As for the state of emergency announced on Jan 12, Fitch said it might compound the impact of Malaysia's persistent political instability in recent years, which had contributed to its decision to downgrade Malaysia's rating from A- to BBB+ in December last year.

"Political volatility weakens prospects for improvements in governance and may have a dampening effect on private investment growth, which has declined since mid-2018 relative to previous years.

"Nonetheless, it has not impeded a swift government response to the pandemic, including the passage of core legislation to implement relief measures prior to the introduction of the state of emergency," it added. - Mkini