Rating action           

MARC Ratings has affirmed its public information sovereign rating of AAA/Stable on Malaysia, based on its national rating scale. 

 

The rating reflects the country’s credit strengths, including a competitive and diversified economy that has maintained a relatively steady growth trajectory. For 2023, Malaysia’s Ministry of Finance (MoF) expects the gross domestic product (GDP) to grow at approximately 4.0% (2022: 8.7%) amid the anticipated slowdown in global growth. Malaysia has consistently posted a current account (CA) surplus, which contributes to adequate official foreign reserves and a stable external financial position. Furthermore, Malaysia’s prudent monetary policy and deep capital market have effectively limited the extent to which occasional financial market volatility affects the real economy. Over the past decade, political and institutional aspects measured by the World Bank's Worldwide Governance Indicators (WGI) remained largely stable. 

Key credit challenges include potential volatility in the growth trajectory over the medium term, following the economy’s nascent recovery from the repercussions of the pandemic. Heightening uncertainties over economic growth is driven by tighter global financial conditions following aggressive rate hikes in the advanced economies to contain inflation. Another major challenge arises from Malaysia’s elevated fiscal and debt levels. The fiscal deficit deepened to 6.4% in 2021 amid the pandemic, prompting the government to renew its focus on fiscal consolidation, with a target of a 5.0% fiscal deficit-to-GDP ratio in 2023 (2022: 5.6%). In view of uncertainties in global growth, maintaining economic momentum will remain an important determinant of tax collections and, therefore, influence the government’s ability to achieve the intended pace of fiscal consolidation. Additionally, maintaining political stability following the state elections held in August 2023 is essential to facilitate the government’s plans to pursue major fiscal and institutional reforms. 

The stable outlook reflects our expectation that continuity of economic policies will maintain the GDP growth momentum, while addressing fiscal efficiency, the high level of subsidies and government debt levels. In addition, it reflects our expectation that Malaysia’s external position will remain stable, supported by a persistent CA surplus and adequate foreign reserves.

Going forward, Malaysia’s credit profile would strengthen if: a) fiscal and debt metrics improve following sustained fiscal consolidation efforts, including revenue broadening measures and expenditure rationalisation; b) political cohesiveness improves; and c) planned economic targets are delivered in a timely manner. Conversely, the credit profile can deteriorate if fiscal consolidation efforts and economic plans are not delivered within expectations.