Moody’s: Malaysia at A3 with stable outlook

Rating is based on medium-term growth prospects and macroeconomic policymaking institutions


MOODY’S Investors Service Inc has affirmed Malaysia’s local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3 and maintained its stable outlook.

The credit rating agency said its affirmation on the A3 grade is based on the country’s medium-term growth prospects and its macroeconomic policymaking institutions.

“The rating affirmation is underpinned by the expectation that Malaysia’s medium-term growth prospects will remain strong and its macroeconomic policymaking institutions will continue to be credible and effective, which provides resilience to the sovereign credit profile.

“According to Moody’s baseline assumptions, these strengths are balanced against the government’s relatively high and increased debt burden, which will leave the government with weakened fiscal strength for some time in the aftermath of the pandemic shock to public finances,” a statement by Moody’s read.

The rating agency added that the structural strengths of Malaysia’s economy, coupled with the ongoing initiatives to upgrade its physical infrastructure and digitalisation efforts, will sustain the country’s attractiveness as an investment destination.

Moody’s anticipates that the Covid-19 will not have a sustained negative impact on Malaysia’s economic model as the current and any subsequent waves of infections will only delay economic recovery.

“Moody’s stable outlook reflects its view that risks to the credit profile remain consistent with the A3 rating level based on current assumptions.

“The authorities’ track record of effective macroeconomic policies, including prudent fiscal policies, has also continued to lengthen, despite ongoing noise in the political landscape,” it said.

The rating agency’s A3 affirmation includes the foreign currency ratings on the backed senior unsecured debt issued by Malaysia Sovereign Sukuk Bhd, Malaysia Sukuk Global Bhd and Wakala Global Sukuk Bhd.

Moody’s has also affirmed the grade for the local currency ratings on the backed senior unsecured debt issued by Khazanah Nasional Bhd, which benefits from an explicit guarantee from the government.

“Malaysia’s local and foreign currency country ceilings remain unchanged at Aa1 and Aa2 respectively,” it said.

However, Moody’s said Malaysia’s rising debt burden is unlikely to reverse swiftly although the government is expected to remain committed to its fiscal consolidation efforts in the next two to three years.

“Balanced against Malaysia’s economic resiliency is the deterioration in the government’s fiscal and debt metrics due to the coronavirus pandemic, which weakens its fiscal strength by limiting its ability to provide significant on-balance sheet support to counter any future shocks.

“Even though the government remains committed to its medium-term fiscal consolidation objectives, Moody’s estimated that its debt burden is likely to remain at the current, higher levels over the next three to four years,” it said.

Moody’s is expecting Malaysia’s fiscal deficit to remain in a wider range than pre-coronavirus at around 5.5% of GDP in 2021, narrowing marginally from 6% in 2020.

“Post-2021, Moody’s expects the deficit will narrow to around 4% of GDP by 2023, consistent with the government’s 4.5% of GDP average deficit target over 2021 to 2023,” it said.

While Moody’s projections incorporate some expenditure reduction and revenue recovery, the rating agency expects Malaysia’s debt to remain around 64% to 67% of GDP through 2023, having jumped up to around 66% of GDP at the end of 2020.

Moody’s similarly expects the fiscal trajectories for most sovereigns globally to result in debt remaining at higher levels for some time.

“However, Malaysia’s debt burden is among the highest compared to similarly rated peers, while its debt affordability is among the weakest, with interest payments accounting for around 12% to 14% of revenue over 2021 to 2023,” added Moody’s.

In a response to the rating, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the affirmation is a testament to Malaysia’s strong fiscal discipline and robust medium-term growth prospects, which are implemented on the back of Covid-19 containment measures.

“Moving forward, Malaysia’s economic recovery will be driven by the efficacy of its public healthcare system, which has been further reinforced through Permai (Malaysian Economic and Rakyat’s Protection Assistance Package).

“Apart from managing Covid-19, which has enabled Malaysia to achieve a case-fatality ratio of less than 0.4%, or within the lowest 5% globally, economic recovery will also be driven by our Covid-19 national vaccination programme,” he said in a separate statement yesterday.

Malaysia’s credit rating has been in question after Fitch Ratings Inc downgraded the country’s long-term foreign-currency issuer default rating to BBB+ from A, with a stable outlook in December last year.