S&P affirms Malaysia’s credit rating but warns of challenges

PETALING JAYA: S&P Global Ratings, which has affirmed its ‘A-’ long-term foreign currency sovereign credit rating on Malaysia with a stable outlook, cautioned that ongoing political challenges in relation to the corruption allegations of 1Malaysia Development Bhd (1MDB) combined with the approaching elections will pose potential challenges to the sovereign rating over the near-to-medium term.

“Those challenges could manifest themselves via a rise in the cost of refinancing Malaysia’s sizeable gross external financing needs, or via non-resident outflows from Malaysia’s deep localcurrency government bond market,” the rating agency said in a statement yesterday.

Nonetheless, S&P said the affirmation of the credit rating reflects Malaysia’s strong external position and monetary policy flexibility, as well as sound growth prospects.

It said the country’s institutions have supported generally effective policymaking especially growth performance and managing the oil price shock in 2014 and 2015 effectively.

However, the approaching parliamentary elections could slow the pace of adjustment by delaying plans to further reduce energy subsidies and to restore fiscal space.

S&P noted that Malaysia’s solid external position remains a strength for the ratings, with current account remaining in surplus despite a decline in key export prices while most of its external liabilities are denominated in the domestic currency.

“We do not expect the volatile energy sector to materially impede Malaysia’s economic growth over the next 24 months, given that production of crude oil and liquefied natural gas account for less than 10% of GDP,” it said.