Moody’s affirms Malaysia’s A3 Ratings with stable outlook

MOODY’S Ratings has reaffirmed Malaysia’s local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3, with a stable outlook.

The rating affirmation reflects Moody’s expectation that Malaysia’s medium-term growth prospects will remain robust, supported by credible and effective macroeconomic policymaking institutions that enhance the country’s sovereign credit resilience.

Despite progress in fiscal consolidation following the pandemic, the ratings agency said that Malaysia continues to face challenges due to its relatively high government debt burden and weak debt affordability.

“Notwithstanding progress on fiscal consolidation as it has emerged from the pandemic, Malaysia’s credit strengths are primarily balanced against a relatively elevated government debt burden and weak debt affordability,” Moody’s said today.

Moody’s has also affirmed the A3 foreign currency ratings on the backed senior unsecured debt issued by Malaysia Sovereign Sukuk Berhad, Malaysia Sukuk Global Berhad, and Malaysia Wakala Sukuk Berhad.

These entities, established as special purpose vehicles by the Malaysian government, are considered to have direct government obligations. The outlook on these ratings remains stable.

Malaysia’s local and foreign currency country ceilings remain at Aa1 and Aa2, respectively.

The five-notch gap between the local currency ceiling and the sovereign rating underscores the predictability and reliability of Malaysia’s policymaking institutions, particularly in fostering a favorable investment climate, deep domestic capital markets, and a sophisticated financial system.

Moody’s further elaborated, “These ceilings typically act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country.”

The one-notch difference between the foreign and local currency ceilings reflects Malaysia’s past implementation of capital controls.

However, the country’s substantial domestic savings and sound policy framework mitigate risks associated with capital flow volatility and potential restrictions, which are considered highly unlikely. — TMR

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