Moody’s affirms Malaysia’s A3 rating with stable outlook

KUALA LUMPUR: Moody’s Investors Service (Moody’s) yesterday affirmed the Government of Malaysia’s local and foreign currency issuer and senior unsecured bond ratings at A3 with stable outlook.

In a statement, Moody’s said the key drivers underpinning the A3 rating and stable outlook are the expectation that the government’s debt burden will remain high, but broadly stable, the relatively high exposure of the economy and financial system to a tightening in external financing, as well as Malaysia’s healthy and resilient growth prospects.

On the government debt burden, it said at 50.9 per cent of Gross Domestic Product (GPP) as of June 2017, Malaysia’s general government debt is significantly higher than the A-rated peer median (40.5 per cent of GDP at end-2016).

“While we expect the debt ratio to remain stable in the next few years, it is also likely to stay above the median for A- rated sovereigns,” it said.

Moody’s said the government’s commitment to fiscal consolida-

While we expect the debt ratio to remain stable in the next few years, it is also likely to stay above the median for Arated sovereigns. Investors Service

tion had resulted in fiscal deficits narrowing in each of the past seven consecutive years.

“While the pace of consolidation will slow going forward, we still expect the deficit to narrow slightly further to 2.8 per cent of GDP in 2018 in line with the budget projections, from 3.0 per cent in 2017 and 6.7 per cent in 2010,” said the ratings agency.

It said deficit reduction has been achieved mainly through tighter spending and the introduction of a Goods and Service Tax in 2015. However, the absence of further meaningful revenueraising measures, will result in additional fiscal consolidation being limited.

In Moody’s view, achievement of the government’s goal of a balanced budget will thus rest primarily on an expansion in growth, rather than any structural budgetary measures. It did not expect this objective to be achieved by the government’s original target of 2020.

As for the high exposure of the economy and financial system to a tightening in the availability and cost of external financing, Moody’s noted that the active non-resident investor presence in Malaysia’s financial markets, left it vulnerable to sudden swings in capital flows.

It said foreign currency reserves had climbed steadily from a recent trough, but remain lower than economy-wide cross-border debt due over the next year, while foreign reserves are larger than short-term debt by original maturity. Turn to Page B2, Col 4