Ringgit Falls as Fitch Warns Deficit Target May Be Out of Reach

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  • Government forecasts 2016 fiscal deficit at 3.1% of GDP
  • Lower commodity prices to weigh on Malaysia's outlook: Fitch

Malaysia’s ringgit declined the most in a week after Fitch Ratings said the government may miss its 2016 fiscal deficit target as the economy remains under pressure from lower commodity prices.

The shortfall could exceed Prime Minister Najib Razak’s estimate of 3.1 percent of gross domestic product, the ratings company said in a statement Tuesday. Fitch estimates the slippage is unlikely to increase Malaysia’s debt ratio, which will remain around 52 percent of GDP until 2017. In Friday’s budget, Najib unveiled plans to raise taxes for high-income earners and accelerate infrastructure development while lowering the deficit from 3.2 percent in 2015.

“Fitch didn’t help,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “The worry is that with oil prices looking as soggy as they are and economic headwinds persisting, hopes for uninterrupted fiscal consolidation may be a little overdone.”

The currency depreciated 0.9 percent, the most since Oct. 20, to 4.2670 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. While the ringgit has gained 3.2 percent this month on fading bets for a U.S. interest-rate increase in 2015, it’s still the worst performer in Asia this year as a slump in Brent crude cuts the oil exporting nation’s revenue.

The Bloomberg Commodity Index of 22 raw materials from oil to metals fell for a fifth day, headed for the longest stretch of declines in two months.

Fitch raised the outlook on Malaysia’s A- rating, the fourth-lowest investment grade, in June after earlier warning of a downgrade due to a deterioration in the nation’s finances.

Sovereign bonds rose, with the 10-year yield falling two basis points to 4.10 percent, the lowest since Aug. 5, according to prices from Bursa Malaysia.