Fitch: Malaysia’s IDR at ‘A-‘ on solid growth

KUALA LUMPUR: Fitch Ratings has affirmed Malaysia’s longterm foreign-currency issuer default rating (IDR) at “A-” with a “stable” outlook, supported by solid economic growth and a net external creditor position built up from a record of current account surpluses.

It said the affirmation not only took into consideration measures such as the abolition of the Goods and Services Tax (GST), but also the stated intention to reduce fiscal deficits and improve governance.

“The agency has raised its estimate of central government debt as at the end of last year to around 65 per cent of gross domestic product (GDP), from 50.8 per cent, following the government’s recognition that it will need to service a large share of explicitly guaranteed debt,” it said in a statement yesterday.

This estimate, however, might be revised as more details become available, it added.

The government has moved ahead on many of its key election promises, notably repealing the GST. It also plans to continue fuel subsidies although they will be made more targeted.

“Fitch views these measures as negative for the credit profile. However, the government aims to implement offsetting fiscal measures and has indicated its intention to contain the central government deficit.”

It acknowledged that there were risks to achieving this target, such as lower-than-expected growth, which could limit room for expenditure cutbacks, as well as delays in implementing planned revenue measures.

“The authorities expect to meet the original budget deficit target of 2.8 per cent of GDP this year through offsetting measures.

“We expect the deficit to continue falling to around 2.5 per cent of GDP by 2020 under our baseline assumptions through a combination of subsidy rationalisation, further capital spending cuts, new revenue measures and better tax compliance.”

It said government debt was likely to decline to around 59 per cent of GDP by 2020.

Fitch expected GDP growth to slow to 5.2 per cent this year, 4.8 per cent next year and 4.6 per cent in 2020, from 5.9 per cent last year, it added.