KUALA LUMPUR, Aug 15 — Rating agency Fitch has suggested that the Anwar administration's position is stable after the six state elections, but Barisan Nasional’s (BN) losses may further antagonise underlying tensions between the unity government partners.

In a report released today, it also said the results which saw Perikatan Nasional (PN) strengthening its position may pose pressure on Prime Minister Datuk Seri Anwar Ibrahim and his government's attempt at fiscal consolidation.

"We believe this outcome will be sufficient to ensure the continuity of the coalition in the near term, but BN’s losses may aggravate underlying tensions between the coalition partners over the longer term. We expect the result to add to the pressures on the BN chairman, [Datuk Seri] Ahmad Zahid Hamidi, who also serves as deputy prime minister but faces corruption charges.

"The results may also further complicate the government’s fiscal consolidation efforts,” it said.

It said that while Anwar has targeted a national deficit of 3 per cent of gross domestic product (GDP) or lower within 10 years and is attempting a reform on subsidies, the election results may now jeopardise this.

Fitch said that while Anwar's Budget 2024 will try to rationalise subsidies, this attempt may exacerbate inflation — a source of public discontent ahead of the state elections.

"The election outcomes could encourage the government to prioritise other aspects of the Madani agenda, such as those focused on containing living costs, raising wage growth and improving welfare.

"It has, for example, recently discussed plans to introduce guidelines for wage increases, albeit only on a voluntary and productivity-linked basis,” it said.

It also predicted that Putrajaya's debt-to-GDP ratio will stand at 72 per cent this year, and said Putrajaya can achieve its deficit target of 5 per cent of GDP this year even with modest additional spending.

"Nonetheless, the electoral pressure on the authorities is likely to limit the potential for upside surprises on fiscal consolidation, making it more likely that Malaysia’s debt levels will remain high,” it said, predicting that the debt-to-GDP ratio will fall modestly just to 70 per cent in 2025.

In February, national news agency Bernama reported Prime Minister Datuk Seri Anwar Ibrahim as saying that Fitch’s affirmation of Malaysia’s credit rating in the "BBB+” category reflects confidence in the government of the day.

Anwar, who is also the finance minister, said this rating showcased Fitch’s confidence in Malaysia’s economic recovery as well as its resilience in navigating an uncertain and challenging global landscape.

Over the weekend, both the Pakatan Harapan (PH)-BN alliance and PN kept their state administrations.

However, PH was denied a two-thirds majority in Selangor, while PN made a clean sweep in Terengganu resulting in no Opposition in the state assembly.