FITCH AFFIRMS MALAYSIA’S RATING
Agency expects GDP to grow 4.5pc and fiscal deficit to rise to 6.5pc this year
FITCH Ratings has affirmed Malaysia’s longterm foreign currency issuer default rating (IDR) at “BBB+” with a “stable” outlook.
Malaysia’s rating balanced prospects for strong and broadbased medium-term growth and persistent current account surpluses with a highly diversified export base against high public debt, a low government revenue base and lingering political uncertainty, it said.
Fitch said Malaysia’s economy was gradually recovering from a contraction of 5.6 per cent last year caused by the Covid-19 pandemic.
“A nationwide lockdown in place since the beginning of last month is negatively affecting the services sector.
“However, manufacturing and exports continue to benefit from thriving demand for Malaysia’s products, including electronics, crude oil and personal protective equipment made of rubber,” it said yesterday.
Fitch expects the gross domestic product (GDP) to grow 4.5 per cent this year and 6.3 per cent next year, which should allow the services sector to benefit from pent-up demand.
Risks to its growth forecasts are mainly related to the evolution of the Covid-19 pandemic.
As a result of relief spending and reduced government revenue, the rating agency expects the fiscal deficit to rise to 6.5 per cent of GDP this year from 6.2 per cent last year.
Part of the additional operational spending will be financed by increased revenue from above-budget international oil prices and dividends from government-linked enterprises.
Fitch said the pandemic had caused a significant rise in general government debt, in line with its rating peers.
It forecasts the country’s debt to reach 78.1 per cent of GDP this year from a pre-pandemic level of 65.2 per cent in 2019.
The debt figures used by Fitch include officially reported “committed government guarantees” on loans, which are serviced by the government budget, and 1Malaysia Development Bhd’s net debt, equivalent to 12.7 and 1.4 per cent of GDP, respectively, as in December last year.
On this basis, the debt burden is significantly higher than the median
of 57 per cent for sovereigns in the “BBB” rating category.
Malaysia’s gross debt is more than 400 per cent of revenue, around three times the peer median.
Fitch expects the debt ratio to decline slightly to 77 per cent of GDP next year and for this trend to continue, facilitated by the resumption of strong GDP growth.
Its medium-term fiscal outlook remained subject to heightened political volatility, said Fitch.
“We expect a gradual reduction in the fiscal deficit, which is forecast to average 5.2 per cent of GDP over this year through 2023 (above the government’s average target of 4.5 per cent) as growth lifts revenues and Covid-19-related spending measures lapse.”