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FITCH'S ratings downgrade of Malaysia's outlook could not have been a total surprise to investors.迷你倉 In what seemed to be a warning salvo, the international rating agency downgraded Malaysia's sovereign rating over the country's worrisome finances. It could be a prelude to an outright diminution of investment grade.To be sure, Malaysia's public finances are worrisome. The federal government debt position is at 53 per cent of gross domestic product (GDP) - edging towards the statutory limit of 55 per cent - and if Putrajaya's contingent liabilities are added to the pile, the figure climbs to 69 per cent of GDP. Moreover, the budget deficit has begun to rise again, climbing back to 4.7 per cent of GDP in the second quarter, up from the projected 4 per cent that the government had hoped for. And Putrajaya continues to spend, recently giving out RM500 (S$194) bonuses to civil servants ahead of the festive season.Fitch's downgrade was in early August, and the week that followed was rough. The stock market fell the most in seven weeks; the ringgit dropped to its lowest level in three years. As it was, the ringgit had fallen 6.1 per cent against the US dollar since January, closing at RM3.244 at the end of July. Yesterday, it was trading at RM3.2570 against the greenback. More importantly, the yield of Malaysian government 10-year debt paper has increased to its highest point since January 2011. The pressure isn't going to go away anytime soon. Indeed, the anticipation of the US F文件倉deral Reserve tapering its bond purchases earlier than expected and Fitch's caveat will continue to pose problems for the ringgit.Although June's trade surplus widened to RM4.3 billion from RM2.5 billion in May, the surplus for the second quarter narrowed to RM7.8 billion, down sharply from RM16.3 billion in the first quarter. That's why Bank of America Merrill Lynch recently predicted a small current-account deficit in the second quarter of about RM972 million or 0.4 per cent of GDP. The trade surplus in the balance of payments, it said, would not be sufficient to offset the deficit in the services balance and another deficit in the income balance.It's just the bank's hunch and the final figures will not be out until late August, but the market seems to think it's probably the case. And despite the fact that, in the overall scheme of things, it's a relatively small deficit, it's still the first in 16 years. And that seems to have been seen as good a reason to sell the ringgit as any.A current-account deficit usually translates into declining international reserves. And while the country's international reserves stood at a reassuring US$137.8 billion as at end-July, the total reserves have fallen by 1.4 per cent or US$1.9 billion since January. Prime Minister Najib Razak has said that the government will unveil a number of policies in the coming national budget to strengthen its fiscal and macro position. Hopefully, it will include measures to cut the soaring national debt.存倉