Moody’s: Malaysia to maintain robust GDP growth

KUALA LUMPUR: Malaysia’s (A3 stable) credit profile is supported by its large and diversified economy, ample natural resources and robust medium-term growth prospects, according to Moody’s Investors Service (Moody’s).

However, Malaysia’s elevated system-wide leverage - including in the household sector - poses credit challenges.

Moody’s in a statement yesterday also said that the robust growth seen in the country in 2017 will likely continue into 2018 and over the medium term, supporting the sovereign’s credit profile.

“Malaysia’s gross domestic product (GDP) growth should average 5.2 per cent in 2018, underpinned by a pipeline of large infrastructure projects that will stimulate public and private investment,” it added.

“Although although the trend of fiscal deficit reduction has been maintained, the implementation of further fiscal consolidation remains a major credit challenge.

“That said, a favorable debt structure and large domestic savings help to mitigate risks arising from a high government debt burden.”

Despite current account surpluses, Moody’s believe Malaysia continues to be exposed to potential volatility in capital inflows, in part due to an active foreign investor presence.

Foreign reserve adequacy remains low when compared with A-rated peers, it said.

Moody’s conclusions were contained in its just-released credit analysis on Malaysia, which examines the sovereign in four categories: economic strength, which is assessed as “very high (-)”; institutional strength “high (+)”; fiscal strength “moderate (+)”; and susceptibility to event risk “moderate (-)”.

The report constituted an annual update to investors and is not a rating action.

The report said that upward pressure on the sovereign’s rating could arise from a material convergence in government debt levels with similarly rated peers, accompanied by improvements in debt affordability and continued fiscal deficit reduction and a reduction in external vulnerability risks, such as through a containment of the rise in short-term external debt liabilities, or through effective use of macroprudential tools to limit volatility in capital flows durably.