In its recently-released report titled, “Government of Malaysia: FAQ On Credit Resilience To High Leverage and External Vulnerability Risks”, Moody’s said Malaysia’s highly diversified and competitive economic structure underpinned stable and relatively robust growth trends that have proven to be resilient to external headwinds.
“Its (Malaysia) resilient economic growth, deep domestic capital markets, large international asset position and large export proceeds mitigate the sovereign’s vulnerability to sudden shocks,” the rating agency said.
On whether household debt presented challenges to Malaysia’s macro-financial stability and growth, Moody’s said at 84.6% of gross domestic product (GDP) at end-September 2017, the country’s household debt levels while stable posed downside risks to growth.
Nevertheless, it said such debt did not pose material threats to financial stability.
“Households have large liquid financial assets to buffer the impact of a potential shock to debt servicing capacity. Moreover, ongoing macro prudential measures will help contain potential further increases in debt,” it added.
Moody’s said Malaysia’s fiscal deficit would narrow from 2.8% of GDP in 2018, as and when strong nominal GDP growth boost revenue.
As a result, the debt burden would likely stabilise around the current level of 50.9% of GDP recorded in June 2017, significantly higher than the A-rated peer median of 40.5% at year-end 2016.
Moody’s believed debt affordability would remain constrained by a narrow revenue base.
With government guarantees, Moody’s said such guarantees were unlikely to present material contingent liability risk, because they were issued through a stringent selection process and most companies that benefitted from them were profitable and competently managed.
At end-2016, the total debt of non-financial public sector corporations stood at 16.6% of GDP, two-thirds of which were guaranteed by the government.
Moody’s also pointed out that Malaysia’s reserves were insufficient to meet maturing external long-term debt repayments and short-term debt.
“Nonetheless, a sizeable net asset position, large export proceeds and deep domestic capital markets (will) moderate external vulnerability,” it added. - Bernama
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