S&P’S EXPECTS MALAYSIA TO CONTINUE WITH FISCAL REFORMS
ENCOURAGING: ‘Stable’ outlook balances strong external asset position and high monetary flexibility
THE government is expected to continue with its fiscal and economic reforms, according to Standard & Poor’s (S&P’s).
The international ratings agency also expects Malaysia’s net general government debt to peak at 51 per cent of gross domestic product (GDP) next year and to modestly decline thereafter.
In reaffirming its “A-/A-2” foreign currency and “A/A-1” local currency sovereign credit ratings on Malaysia, S&P’s said: “The ‘stable’ outlook balances Malaysia’s strong external asset position and high monetary flexibility with its relatively weaker but stable public finances”.
The ratings agency has also affirmed its “axAAA/axA-1+” Asean regional scale rating on Malaysia.
“We project net general government debt will peak at 51 per cent of GDP next year, and expect it to modestly decline thereafter,” said S&P’s report, adding that the 1Malaysia Development Bhd (1MDB) issues “will not impede effective policymaking”.
In addition, the report said Malaysia has a high degree of monetary policy flexibility.
“Bank Negara Malaysia has an established track record in controlling inflation, indicating strong monetary flexibility that helps absorb major economic shocks,” it said, adding that Malaysia’s efforts in fiscal consolidation were encouraging.
“The government has shown considerable commitment towards fiscal consolidation even amid deterioration in the country’s terms of trade, and ongoing political challenges,” said S&P’s report.
On concerns of the high household indebtedness of Malaysia, the rating agency said it was somewhat contained by a banking sector that was well-capitalised and has a good regulatory record.
Household financial assets are also ample and Malaysia is ranked fourth in its banking, industry and country risk assessment.
“Malaysia’s relatively high share of non-resident holders of ringgitdenominated government bonds leaves the country’s capital market exposed to a sudden potential funds outflow,” it said, identifying it as one of the credit risks now.
As of end last year, this metric stood at about 26 per cent.