by NUR HANANI AZMAN / pic credit: goingwithmygut.com

MOODY’S Investors Service Inc expects Malaysia’s GDP to grow by slightly above 5% in 2021 in its latest forecast, as a result of the newly imposed Full Movement Control Order and the potential extension of the related restrictions.

“The economic rebound this year, despite the latest tightening of restrictions, will continue to be supported by the government’s economic stimulus — including ongoing support for wages, cash handouts, public infrastructure spending and incentives for private investment that will help anchor domestic demand — as well as base effects,” it said in a report yesterday.

Malaysia’s credit profile is to remain consistent with the ‘A3’ rating level based on current assumptions.

The rating firm said Malaysia’s ‘A3’ stable credit profile is underpinned by its diversified, competitive and moderately large economy, ample natural resources and strong medium-term growth prospects.

“The large pool of domestic savings supports the high government debt burden and lowers liquidity risk.

“Credit challenges include the government’s narrow revenue base, which limits fiscal flexibility in response to shocks such as the coronavirus pandemic, as well as political noise that may distract from policy priorities,” Moody’s said in the report yesterday.

“We do not expect the coronavirus pandemic to have a sustained negative impact on Malaysia’s economic model; as such, the current and any subsequent waves of infections will delay but not materially hinder the economy’s eventual return to high growth rates.

“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 added.

Upward pressure on the rating would develop if prospects for fiscal consolidation were to improve significantly, particularly through measures that broadened the currently narrow revenue base, pointing to a sustained decline in the government debt burden and improvement in debt affordability.

Further enhancements to the institutional framework that were to raise governance standards and resulted in increased policy credibility and effectiveness, including in the management of public finances, and boosted Malaysia’s potential growth would also be credit positive.

Moody’s, however, said downward pressure on the rating would stem from a further weakening in the government’s debt and debt affordability metrics, a sharp rise in contingent liabilities and/or a softening of the commitment to medium-term fiscal consolidation that may result in continued deterioration in the government’s fiscal strength.

Volatile politics that undermined the credibility and effectiveness of institutions and threatened the stability of capital flows would also be credit negative.

Moody’s assesses Malaysia’s fiscal strength to be ‘Ba2’, which takes into consideration the government’s narrow revenue base and high debt burden compared to peers, as well as challenges to rapid fiscal deficit reduction because of pandemic-related spending and limited options to cut expenditure further.

“Our estimates for the government’s debt include the debt of some state-owned enterprises (namely 1Malaysia Development Bhd, SRC International Sdn Bhd and Suria Strategic Energy Resources Sdn Bhd) that benefit from an explicit guarantee from the government and that, in our view, are unlikely to be able to service their debt independently.

“Revenue as a share of GDP is among the lowest across A-rated peers and has fallen further in recent years, weighing on debt affordability as measured by interest payments as a percent of government revenue and limiting the government’s ability to provide fiscal support in response to a large shock,” it said.

Moody’s assesses Malaysia’s susceptibility to event risk to be ‘Baa’, driven by political risk.