The inability of state investment fund 1Malaysia Development Berhad (1MDB) to repay its debts may trigger a downgrade in Malaysia's sovereign ratings, dealing yet another blow to a country already hit by falling oil prices.
"Certainly, the risk is there for a downgrade," said Hak Bin Chua, Asean economist at Bank of America Merrill Lynch.
Ratings agency Moody's warned last week that a worsening in Malaysia's debt dynamics or the crystallization of large contingent liabilities could exert downward pressure on its current A3 rating. Meanwhile, Fitch has an A- rating with a negative outlook on the country, which means a cut is likely within the next 12-18 months, according to a recent statement from the agency.
"Our sovereign credit team also has a negative outlook on the country. From an economics perspective, you can really see the cracks starting to show," said Su Sian Liam, Asean economist at HSBC.