How much capital outflow was estimated if Malaysia was downgraded?

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Estimated Capital Outflow if Malaysia Was Downgraded

An estimated outflow of US$8 billion (RM33.3 billion) was projected had Malaysia been downgraded from market accessibility level 2 to level 1 by FTSE Russell, which would have led to its removal from the World Government Bond Index (WGBI). This potential removal posed a significant risk to the capital markets and the broader economy.
Potential Impact of Downgrade

A downgrade would have resulted in Malaysia's exclusion from the FTSE Russell's World Government Bond Index (WGBI). This exclusion was anticipated to negatively impact liquidity within the bond market and lead to an increase in yields, thereby exerting further pressure on an already fragile economic environment.
Retention on Watchlist Provides Relief

The news that Malaysia would be retained on FTSE Russell's watchlist, rather than being downgraded, was viewed as a significant relief for the capital markets and the economy. While the risk of reclassification and potential removal remains, with a decision point in March 2021, the current status alleviates immediate concerns about substantial fund outflows.
Bank Negara Malaysia's Initiatives

FTSE Russell acknowledged the measures implemented by Bank Negara Malaysia (BNM) over the past year to enhance the accessibility of the Malaysian government bond market to foreign investors. These initiatives, which include improving secondary market liquidity and enhancing the foreign exchange market structure, were noted as positive steps.
Market Reaction and Ringgit Impact

The decision to keep Malaysia on the watchlist was largely in line with market expectations, thus having a neutral immediate impact on the ringgit. Analysts suggested that the ringgit's performance might be more influenced by factors such as oil prices in the future.

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How much capital outflow was estimated if Malaysia was downgraded?

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