Malaysia to sustain robust economic growth, says Moody’s

Nation’s A3 credit rating is backed by its large and diversified economy as well as natural resources


Malaysia’s credit profile will remain supported by a robust average gross domestic product (GDP) growth projection of 5.2% this year and over the medium term.

Moody’s Investors Service Inc in its latest in-depth report noted that the country’s A3 credit rating is backed by its large and diversified economy, sufficient natural resources and healthy medium-term growth.

“Since 2010, Malaysia’s well-developed infrastructure, competitive manufacturing and service sectors, and substantial natural resources have helped the country to record an average annual growth of 5.5%, making it one of the fastest-growing A-rated sovereigns,” the international rating agency noted yesterday.

The large infrastructure projects in the pipeline would help spur public and private investments, the report added.

The boom in electronics- and commodity-related exports has resulted in a staggering growth in exports — a jump of 18.9% year-on-year (YoY) posted in 2017 from 1.2% YoY in 2016.

Moody’s cautioned household debt would remain a challenge to economic growth and macro-stability despite posting a moderate trend.

“Although trends in household debt have moderated as a share of the GDP, the challenges are affecting the macro-stability.

“However, the debt showed a declining rate, mainly due to macro-prudential measures introduced by Bank Negara Malaysia (BNM) since 2010 to tighten household lending.

“This has led to a lessening growth in riskier household loans, including personal unsecured financing, credit-card debt and motor vehicle loans,” it said.

At the end of the fourth quarter of 2017 (4Q17), the outstanding household debt stood at 84.3% of GDP compared to 88.4% at the end of 2016. However, it is still comparatively higher to Malaysia’s income levels.


At the end of 4Q17, the outstanding household debt stood at 84.3% of GDP compared to 88.4% at the end of 2016 (Pic by Muhd Amin Naharul/TMR)

The banking system holds a size-able proportion of lending to low- income households, which has resulted in a poor debt serviceability and lesser financial flexibility.

“According to BNM, these vulnerable household borrowers made up 21% of total banking system house- hold loans at the end of 2017, down slightly from 24% between 2014 and 2015.

“These households’ debt affordability is significantly worse by eight times than that of higher income households,” it said.

Malaysia is facing a challenge in maintaining productivity growth in order to avoid falling into the “middle-income trap” similar to several other economies.

According to the Malaysia Productivity Corp, the country’s labour productivity evaluates higher than others in Asian economies, including China, Indonesia, the Philippines and Thailand, but is below that enjoyed by developed economies.

In the 11th Malaysia Plan, the government targets a 3.7% increase in labour productivity per annum by 2020 in order to achieve a 5%-6% growth in GDP.

In 2016, Malaysia’s labour productivity grew 3.5%, helped by government’s continuous efforts in putting forward digitalisation and improving accountability at the industry level.

“Ongoing efforts to increase productivity coupled with the relatively well-diversified nature of the economy and its ability to withstand shocks in the past reinforce our expectation that growth performance will remain robust, relative to similarly rated peers,” it said.