FITCH Ratings has affirmed Malaysia's long-term foreign currency rating at A- and the long-term local currency rating at A+.
The agency said in a statement yesterday that it also affirmed Malaysia's short-term rating at F2 and the country ceiling at A-. Outlook on the ratings is stable.
Fitch's rating balances Malaysia's robust international liquidity position and declining external debt profile against the scope for further improvements in public finances, said Fitch's Asia Sovereigns team associate director Ngiam Ai Ling.
She added that Malaysia's external finances continued to be a fundamental rating strength.
Fitch forecasts the current account position will stay above 12% of gross domestic product (GDP) in 2005, thanks to improvements in the tradable account, strong tourism receipts and a net oil trade surplus.
Meanwhile, the agency expects Malaysia's liquidity ratio to hit around 361%, which is very strong compared with the average 131% for peers in the A rating category.
Following a 50% rise from 2003, foreign exchange reserves are expected to increase by a further 27% to reach about US$85bil by year's end. On the back of these external strengths, the country has become a net external creditor since 2003.
Net external credit to GDP is estimated to rise further to 35% in 2005, while debt service is forecast to stay manageable at about 6% of current external receipt.
Fitch expects real GDP growth to slow to around 4.9% in 2005 from 7% in 2004 and improve marginally to 5.3% next year.
It said that leading indicators pointed to a recovery in external demand by the first quarter next year, which should pave the way for a gradual pick-up in household consumption and private sector investments.
These should continue to limit the need for proactive fiscal policies. However, Ngiam said any upward pressure on the ratings would only result from the authorities keeping a tighter rein on Government spending.
Although Fitch notes that the current administration has continued to restrain large-scale public spending projects in 2005 and 2006, there is scope for a more aggressive risk reduction in public finances to justify any positive revision to the rating outlook, she said.
Fitch also estimates the fiscal deficit would widen to 4.9% of GDP this year, higher than the 4.1% recorded last year.