What is the impact of the recent hike in government employee salaries on the country’s fiscal position?

Standard & Poor’s Ratings Services said it is evaluating the impact.

Malaysia’s foreign currency is rated ‘A-/stable/A-2′ and local currency is rated ‘A+/stable/A-1′.

S&P said that Malaysia’s fiscal position is the weak element of its credit profile. It added that although the general government deficit has declined steadily, the ratio remains above the median for ‘A’ rated countries.

Good growth prospects, a strong external position and a healthy financial sector balance its credit weakness, the ratings agency added.

S&P said the outlook on Malaysia could be revised to positive if it feels that the government’s deficit targets can be met with recurring revenues or sustainable expenditure cuts.

I think with general election looming, it is likely that PM Abdullah Ahmad Badawi will continue to drain the coffer to create good feelings for the electorates.