Sovereign risk refers to the risk that a host government or sovereign power would default on its payment obligations i.e. a host government or sovereign power may unilaterally repudiate its foreign obligations or may prevent local firms from honoring their foreign obligations. Country risk is said to encompass sovereign risk to a certain extent. Even though factors that determine sovereign risk are easier to quantify than those for country risk, sovereign risk analysis still involves substantial judgment based on the rating agency's knowledge and experience of the host country.
The rating agency Moody's Investors Service has affirmed the sovereigns A3 bond rating with a stable outlook. The A3 rating is supported by the country’s moderate economic strength, which in turn is backed by the size of its economy and its highly open and well diversified external sector.
The economic resilience of Malaysia is constrained by its relatively moderate per capita income and the unlikely prospects for a sustained strengthening in domestic private demand. Malaysia’s institutional strength has been constrained by administrative short comings and socio political priorities. These have weakened the prospects for stronger fiscal discipline and much needed structural reforms that could have boosted private investment to a greater extent.
Since 1969, political violence in Malaysia has been almost non-existent; however, Malaysia is currently experiencing increased demonstrations over racial tensions, political divisions, and U.S. policies in the Middle East, with some rare associated outbursts of violence.
There are two main terrorist groups in the Southeast Asia region, Abu-Sayyaf Group (ASG) and Jemaah Islamiyah (JI), which have suspected links with al-Qaeda. There have been numerous terrorist attacks in the region, but so far Malaysia has not had any significant terrorist activity.
Last Updated on: 18-11-2009
