Domestic politics to the fore
Moody's Investors Service says domestic politics are now in the spotlight in many Southeast Asian countries, but the potential impact on government credit profiles varies significantly.
In a new report, Moody’s finds that the effect of political events such as elections on a sovereign’s credit quality can vary based on institutional structure and strength, and buffers against event risk.
In several countries in the region, Moody’s sees a heightened likelihood that domestic events could have an impact on sovereign political risk scores.
That could ultimately have a bearing on a country’s credit |rating.
The report looks at political risk in 10 Southeast Asian countries: Brunei (unrated); Cambodia (B2, stable); Indonesia (Baa3, stable); Laos (unrated); Malaysia (A3, positive); Myanmar (unrated); the Philippines (Baa2, stable); Singapore (Aaa, stable); Thailand (Baa1, stable); and Vietnam (B1, stable).
The likelihood of political factors affecting creditworthiness ranges from very low (Singapore) to moderate + (Thailand), with other rated Southeast Asian governments’ rankings in between.
The most prominent events have included landmark general elections in Myanmar; allegations of financial impropriety and mismanagement surrounding a government-owned investment company in Malaysia; as well as continuing political polarisation in Thailand, following the coup in May last year.
For Myanmar, the military’s response to the result of Sunday’s election, to the public reaction and to the policies of the incoming government will be crucial indicators of its commitment to continued reform and pivotal in determining the country’s economic outlook.
In Malaysia, increased political challenges have not yet translated into greater fiscal risk but a slowing in the pace of fiscal tightening, as announced in the 2016 budget, casts some doubt on the government’s ability to achieve its target of a balanced budget by 2020.
In Thailand, cyclical pressures on the economy have grown as the timeline for the restoration |of electoral democracy has become more uncertain. This marks a break with past expe|rience, when economic and |political developments moved largely independently of each other.
