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Former Malaysian PM Warns Of “Economic Crisis” If Brent Trades Below $70

November 13, 2018

Former Malaysian PM Warns Of “Economic Crisis” If Brent Trades Below $70

Najib Razak, the former prime minister of Malaysia, warned that the country is headed for an economic collision of massive proportions should ICE Brent Crude contracts trade below $70. As of Friday, Brent Crude contracts settled at 70.18, which he also warned that Moody’s decision to downgrade the country’s credit rating to negative could be imminent.

The former prime minister, who was previously arrested in July for involvement in the 1MDB scandal, explained in a Facebook post that the recent bear market in oil would see the country’s deficit explode and the Malaysian ringgit continue to depreciate as the Federal Reserve signals further rate hikes.

“The pressure on the government’s fiscal position will double,” Razak warned.

This, Razak said, the country would have to issue a higher dividend to cushion the shortfall in revenue for Petronas, the country’s national petroleum company.

In doing so, he said that could severely impact Malaysia’s credit rating for 2019.

“This is when oil prices are said to be high and stable. But what if oil prices drop?… What buffer do we have to cushion an oil crisis, if it happens again?,” he questioned.

On Thursday, Moody’s affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petronas but altered its outlook from stable to negative.

“The rating agency also affirmed the A1 rating for Petronas Capital Ltd’s senior unsecured notes and the US$15 billion medium-term note (MTN) programme as well as sukuk issued through Petronas Global Sukuk Ltd, but changed its outlook to negative from stable.

Moody’s said the rating action was due to the government’s announcement that Petronas would be paying RM26 billion in dividends in 2018 and RM54 billion (inclusive of a one-off special dividend of RM30 billion) in 2019,” Free Malaysia Today.

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Pension Shocker: Plans Face $2 Trillion Shortfall, Moody’s Says

July 19, 2015

Pension Shocker: Plans Face $2 Trillion Shortfall, Moody’s Says

Last month, in “Cities, States Shun Moody’s For Blowing The Whistle On Pension Liabilities,” we highlighted a rift between Moody’s and some local governments over the return assumptions for public pension plans.

To recap, when it comes to underfunded pension liabilities, one major concern is that in a world characterized by ZIRP and NIRP, it’s not entirely clear that public pension funds are using realistic investment return assumptions. The lower the return assumption, the larger the unfunded liability. After 2008, Moody’s stopped relying on the investment return assumptions of cities and states opting instead to use its own models. Unsurprisingly, this led the ratings agency to adopt a much less favorable view of state and local government finances and as WSJ reported, rather than admit that their return assumptions are indeed unrealistic, local governments have opted to drop Moody’s instead.

The debate underscores a larger problem in America. Almost half of the states in the union are facingbudget deficits.

Underfunded pension liabilities are one factor, but the reasons for the pervasive shortfall vary from plunging oil revenues to plain old fiscal mismanagement. The pension issue gained national attention after an Illinois Supreme Court decision threw the future of pension reform into question and effectively set a precedent for other states, sending state and local officials back to the drawing board in terms of figuring out how to plug budget gaps. One option is what we have called the “pension ponzi” which involves the issuance of pension obligation bonds. Here is all you need to know about that option:

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