MALAYSIA TO GROW FASTER THAN OTHER A-RATED ECONOMIES, SAYS MOODY’S

Moody’s credits country’s well-developed infrastructure, natural resources and economic competitiveness, among others

MOODY’S Investors Service expects Malaysia to grow faster than all other “A-rated” countries through 2020.

This was due to its well-developed infrastructure, substantial natural resources and the diversification and competitiveness of its economy, it said.

Malaysia’s large services sector and well-developed manufacturing base, especially in electronics, had helped to offset the terms of trade shock posed by the downturn in global prices for key commodity exports, Moody’s added.

Malaysia’s exposure to external demand as measured by the sum of exports and imports of goods and services, which nearly approached 130 per cent of the gross domestic product (GDP) last year, left it vulnerable to swings in global trade, it added.

Malaysia’s fiscal strength had weakened since a year ago due to lower revenue, which in turn affected the other fiscal metrics.

But despite its large debt burden, only 3.3 per cent of direct government debt was denominated in foreign currency at the end of last year, with most being syariah-compliant US dollar issues.

Malaysia is likely to achieve a robust growth of 4.3 per cent this year and next year, on the back of current account surpluses.

But the near-term outlook faces risks from a rise in trade protectionism and spillover from a slowdown in imports from China.

“Continued fiscal expenditure restraint and the potential impact of a weaker ringgit on business sentiment and imported inflation could weigh on domestic demand,” it warned.

On the other hand, commodity prices for petroleum, natural gas, and palm oil have become more supportive in recent months and could possibly foster exports, as well as accommodate greater fiscal spending.

Moody’s maintained its “A3” stable outlook on Malaysia, saying the resilient economy provided balance against structural fiscal challenges due to lower revenue.

It said the rating action could be positive if government debt metrics improved with a lower fiscal deficit to the GDP.

Moody’s expects to see some improvement in government debt to GDP ratio this year with fiscal consolidation efforts and economic growth.

It expects less currency volatility and some accumulation of foreign exchange reserves due to new foreign exchange administration rules by Bank Negara Malaysia.

“Nonetheless, Malaysia remains well-positioned with regard to other measures of its capacity to service external debt,” it said.