Malaysia’s credit rating strong

by MARK RAO / pic by TMR FILE

MALAYSIA’S sovereign credit rating is not affected by increases in direct debt as overall debt and liabilities have been reduced, Finance Minister Lim Guan Eng said.

He said this in response to the credit rating agency S&P Global Ratings reaffirming Malaysia’s issuer credit rating at ‘A-‘ and ‘Stable’ on July 3 this year.

“The reaffirmation demonstrates its confidence in Malaysia’s positive economic outlook, strong institutional profile, sound economic fundamentals and prudent debt management,” Lim said in a statement yesterday.

“The reaffirmation also shows that the increase in government’s direct debt does not affect Malaysia’s sovereign credit ratings, especially when the government’s overall debt and liabilities have been reduced.”

While direct debt rose to 51.2% of GDP in 2018 from 50.1% the year prior, the country’s overall debt and liabilities were lowered 3.9 points to 75.4% of GDP over the same period, Lim noted in the statement.

This was largely owing to the cost-rationalisation efforts undertaken by the federal government on mega infrastructure projects across the country.

Finance lease and other liabilities were also lower at 15% of GDP from 21.8% in 2017 though committed government guarantees inched 1.8 points higher to 9.2% of GDP.

Lim said direct debt is only one component of Malaysia’s overall debt and liabilities which include 1Malaysia Development Bhd-related debt which the government is compelled to service directly. Note that 1MDB’s debt stands at RM51 billion.

Nonetheless, the Finance Ministry is confident of reducing the country’s fiscal deficit to 3.4% of GDP this year from 3.7% in 2018, he said.

Lim added that the recently established Debt Management Committee will ensure Malaysia’s debt management practices are in line with global best practices, while the current administration’s reform to combat corruption is a credit positive for the country.

“The country’s economic stability and strong financial institutions remain the important pillars in driving Malaysia’s development, and in maintaining Malaysia’s sovereign credit ratings high at ‘A-‘ or ‘A3’,” he said.

“Growth and reform mea-sures carried out will rebuild trust in the government, improve domestic business environment, while enhancing the welfare of the rakyat through the creation of better job opportunities and wage growth.”

Meanwhile, Lim said Malaysia’s healthy growth prospect is a driver for a stronger credit rating with the economy projected to grow 4.6% this year, low and stable inflation over recent months and the cut in the Overnight Policy Rate easing consumer cost pressures.

“Additionally, despite the ongoing trade war between China and the US, Malaysia’s exports have been rising above expectations for the second straight month due to trade diversion,” he said.

In May this year, the country’s exports grew 2.5% year-on-year (YoY) to RM84.1 billion — above market consensus of a 2.2% growth, Lim added.

Trade surplus for the first five months of 2019 came in 4.3% higher YoY at RM56.8 billion, while approved foreign direct investment in the first quarter of the year jumped 73.4% to RM29.3 billion.