KUALA LUMPUR: Moody's Investors Service has reaffirmed Malaysia’s credit profile of A3 with stable outlook.
Moody’s said the rating was supported by the country’s large, diversified and competitive economy, strong medium-term growth prospects compared with similarly rated peers and ample natural resources.
In a report today, Moody’s said the institutions had also demonstrated effectiveness in macroeconomic policymaking and financial supervision.
Although government debt was moderately high, debt structure was favourable and the government had access to a large pool of domestic savings, it added.
Moody’s expects Malaysia’s real gross domestic product (GDP) growth to remain at the lower end of its 2014-18 range, averaging 4.5 per cent over the next two years because of weaker global growth, but remain higher than peers.
The firm said balanced against these credit strengths were the government’s narrow revenue base that limits fiscal flexibility, challenges to further fiscal consolidation, and institutional weaknesses in control of corruption and governance.
“External vulnerability drives Malaysia’s susceptibility to event risks because of sizeable external debt repayments relative to foreign-exchange reserves.
“We expect the government’s fiscal deficit to average 3.3 per cent of GDP over 2020-21, as slower growth compared with the past decade, the abolishing of the goods and services tax that has narrowed the revenue base, and ongoing social spending needs continue to weigh on government efforts to further reduce deficits.
“The stable outlook indicates that risks to Malaysia’s rating are balanced, ” it added.
Moody’s said the rating could be upgraded if prospects for fiscal consolidation were to improve significantly, particularly through measures that broadened the current narrow revenue base, and pointing to a sustained decline in the government debt burden and improvement in debt affordability.
A reduction in external vulnerability risks that diminishes Malaysia’s sensitivity to confidence based capital flows, such as through a reversal of the rise in short-term external debt liabilities, would also be credit positive.
The rating could be downgraded if government debt was to increase markedly over the next few years, whether through wider currently assume fiscal deficits or significant financial support to state-owned enterprises over a number of years.
“Rising political tensions and divergences of views within the government that undermined policy effectiveness and threatened the stability of capital flows could also lead to a rating downgrade.
“In the context of broad-based and likely lasting global trade tensions, weaker medium-term growth prospects beyond our current expectations, including through lower investment, could also lead to a rating downgrade, ” it added.