MARC has affirmed its public information local currency sovereign rating of AAA/stable on Malaysia, based on its national sovereign rating scale.  Under this rating scale, the sovereign state of Malaysia carries the lowest relative risk for reasons that include its authority to tax and set interest rates.

The rating reflects several credit strengths, including a competitive and well-diversified economy with a relatively resilient and stable growth track record. Malaysia comes in at number 27 out of 63 economies in the 2020 edition of the Institute for Management Development (IMD) World Competitiveness Rankings in terms of international competitiveness. The World Bank’s Ease of Doing Business 2020 report moved Malaysia up three places to a global rank of 12th out of 190 economies. In 2019, the World Trade Organisation (WTO) ranked Malaysia at number 26 in both exports and imports of global merchandise trade, enabling the country to enjoy a persistent current account surplus and, consequently, a healthy external position. Together with credible monetary management, these positive developments have managed to keep to a minimum any spillover from episodic financial market volatility into the real economy.

Key credit challenges include the ongoing pandemic, which has increased economic and macro-financial risks. While we expect the government to remain committed to fiscal consolidation, plans will have to be put on hold. It is necessary to provide continued fiscal support to avoid further economic damage. We expect sustained pressure on the balance sheet of the government and those of corporates and households, especially given the demonstrated ease of COVID-19 resurgences. Note that there are also risks on the external front as the pandemic remains ongoing and the anticipated rollouts of vaccines have been slower than anticipated.

The stable outlook reflects our expectation that the government will maintain broad economic policy continuity and remain proactive and practical in its economic, fiscal, and monetary management efforts. It also reflects our expectation that Malaysia’s external position will continue to be healthy even in the face of persistent buffeting headwinds, at least over the medium term.

Going forward, on the one hand, positive evidence of an effective fiscal and monetary policy mix to support and repair the economy will gradually improve Malaysia’s credit profile. The credit profile will, on the other hand, deteriorate if: a) the policy mix proves ineffective or is deemed imprudent; and b) COVID-19 resurgences elevate further already high economic and macro-financial risks.

Key strengths

• Competitive and well-diversified economy

• Healthy external position

• Credible monetary policy

• Economic scarring from COVID-19

• Fiscal deterioration

• Pressure on corporate and household balance sheets