CREDIT ANALYSIS REPORT

MALAYSIA - 2020

Report ID 60552 Popularity 539 views 19 downloads 
Report Date Jul 2020 Product  
Company / Issuer Malaysia Sector Country
Price (RM)
Normal: RM500.00        
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Rationale
MARC has affirmed its public information foreign currency sovereign rating of AAA/stable on Malaysia, based on its national rating scale.  The AAA rating reflects several credit strengths, including a competitive and well diversified economy. It was, for example, positioned relatively high at number 27 in the 2019 edition of the World Economic Forum’s Global Competitiveness Index 4.0 ranking. Malaysia’s competitiveness has been evident in among other things, a persistent current account surplus, and consequently, a healthy external position. Due in part to this, as well as proactive and practical economic and monetary management, spillovers from episodic financial market volatility into the real economy have been minimal.

Key credit challenges include the disruptive coronavirus disease (COVID-19) pandemic and the recent crude oil price collapse. Against the backdrop of such developments, economic and financial risks have risen. Meanwhile, the government’s stimulus packages to mitigate the impact of the pandemic have set back fiscal consolidation. We thus expect Malaysia’s fiscal balance to fall further into deficit territory and debt to creep upwards down the road. In the private sector, the pandemic and the measures to curb its spread have severely impacted the balance sheets of corporates and households.
The stable outlook reflects our expectation that broad economic policy continuity – despite the change in government – will be maintained and economic and monetary management will remain proactive and practical in the face of the COVID-19 pandemic. It also reflects our expectation that Malaysia’s external position will remain healthy as headwinds rise. We are nevertheless cautious on the outlook because of the still developing global pandemic with its attendant impact on oil prices, as well as uncertain political landscape.

Going forward, positive evidence of the effectiveness of the government’s fiscal and monetary policy mix to mitigate the impact of the COVID-19 outbreak will improve Malaysia’s credit profile. It will, on the other hand, deteriorate if: a) the easing policy mix proves ineffective; b) the viral outbreak resurges, and partial lockdowns are reintroduced; or c) oil prices stay at depressed levels for long.

Major Rating Factors

Strengths 
Competitive and well diversified economy;
Effective and credible monetary policy; and
Healthy external position.

Challenges/Risks
COVID-19 pandemic;
Persistent fiscal deficit; 
Elevated government debt and contingent liabilities; and
Rising pressure on corporates and households.

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