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Moody's affirms Malaysia's A3 rating with stable outlook ✅

Writer's picture: Robert Tu (R2)Robert Tu (R2)

KUALA LUMPUR (28/01/2021): Moody's Investors Service today affirmed the Malaysian government's local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3, and kept its outlook at stable.


Image from Malaysia Maps

In a statement, Moody's said the rating affirmation was based on its expectation that Malaysia's medium-term growth prospects will remain strong, while its macroeconomic policymaking institutions will continue to be credible and effective, which provides resilience to the sovereign credit profile.


These strengths it outlined are balanced against the government's relatively high and increased debt burden, which will leave the government with weakened fiscal strength for some time in the aftermath of the pandemic shock to public finances.


"In particular, while Moody's continues to expect the government to remain committed to its gradual path of fiscal consolidation over the next two-three years, the rise in debt burden is unlikely to rapidly reverse," Moody's said, pointing to what is implied by the government's fiscal targets for 2021-2023.


"That said, the country's large pool of domestic savings can continue to finance the fiscal deficits and keep interest payments anchored," it noted. The savings it refers to include retirement savings held in the Employees Provident Fund.


Moody's expects the government's fiscal deficit to remain wider than pre-coronavirus in 2021, at around 5.5% of GDP, only narrowing marginally from 6% in 2020, compared to an average of 3.3% of GDP over 2014-19.


At the same time, Moody's has affirmed Malaysia's foreign currency ratings on the backed senior unsecured debt issued by Malaysia Sovereign Sukuk Bhd, Malaysia Sukuk Global Bhd, and Wakala Global Sukuk Bhd.


Also affirmed by Moody's at A3 are the local currency ratings on the backed senior unsecured debt issued by Khazanah Nasional Bhd, which it said benefits from an explicit guarantee from the government.


"Malaysia's local and foreign currency country ceilings remain unchanged at Aa1 and Aa2, respectively.


Malaysia's real GDP growth to rebound to 6% in 2021


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"This is in part driven by base effects, although the government's fiscal package, including ongoing support for wages, public infrastructure spending, and incentives for private investment will support domestic demand," it said.


Beyond 2021, Moody's expects the Malaysian economy to grow at a strong average of 5-5.5% over 2022-23 — which is higher than the median of 3.4% over the same period for similarly rated peers — on the assumption that the government can effectively curb the spread of the virus.


The robust growth potential, it said, is supported by the economy's competitiveness and the diversity of its exports, with highly rated infrastructure quality and well-educated and trained labour market, among others.


"However, Malaysia's debt burden is among the highest compared to similarly rated peers, while its debt affordability is among the weakest."


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"In Malaysia's case, the fiscal challenge is magnified by the government's narrow revenue base, which has declined since the sharp fall in oil prices over 2014-16 and the abolishment of the goods and services tax in 2018. Moody's estimates that revenue as a share of GDP will fall to around 15-16% in 2021" it added.

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