PETALING JAYA: A resilient economy continues to underpin Malaysia’s A3 issuer rating and stable outlook against structural fiscal challenges.
These challenges, Moody’s Investors Service said in an annual report to investors, include the deterioration in revenue as well as signs of weakening institutional strength.
Moody’s said the economy should achieve robust growth of 4.3% in 2017 to 2018 with continued current account surpluses. The report examines the sovereign credit profile for economic, institutional and fiscal strengths as well as susceptibility to event risk.
The rating agency said that the government has demonstrated a commitment to fiscal consolidation, with seven consecutive years (2010 to 2016) of narrowing fiscal deficits involving a curtailment of expenditure to offset the continued weakness in revenue generation.
“The country’s debt burden likely peaked in 2015, registering just under 55% of gross domestic product, although debt affordability has continued to worsen,” it added.
However, it noted that reform momentum has stalled and does not expect any significant change before the next elections due by May next year.
“Factors that could prompt a positive rating action include a greater convergence in government debt metrics with similarly rated peers, accompanied by improvements in debt affordability and a reduction in the fiscal deficit,” it pointed out.
Moody’s said a significant worsening in debt or fiscal accounts or an inability to manage the impact of external shocks on the real economy or the financial system could result in a negative rating action.
“The crystallisation of large contingent liabilities and an even greater deterioration in the balance of payments could also exert downward pressure on the rating,” it said.
On the external stability front, it said that the country’s foreign currency stability belies the currency and capital flow volatility. “Reserve adequacy has improved slightly, but is still comparatively worse relative to Malaysia’s A-rated peers,” it said.