Moody's affirms Malaysia's A3 ratings; concerned about govt debt

KUALA LUMPUR: Moody's Investors Service has affirmed the government of Malaysia's local and foreign currency issuer and senior unsecured debt ratings at A3. The outlook remains stable.

The rating agency said the affirmation of Malaysia's A3 rating recognises that Malaysia's fiscal strength has weakened. 

“Government debt will stay high for longer and the  government's fiscal policy choices will narrow the revenue base and reduce fiscal flexibility further,” it said in a statement on Friday. 

However, on a positive note, Moody's robust growth potential, notwithstanding a slowdown in the next few years, and deep domestic capital markets continue to support the rating at A3. 

“A solid institutional framework, including strong monetary policy effectiveness, also supports the credit profile, although in Moody's view, the  government will face hurdles to significantly reining in pervasive corruption,” it said.

Moody's said the stable outlook balances credit constraints from low debt affordability and a high debt burden against inherent credit strengths, including resilient economic growth and a stable and broad funding base for the country's debt. 

Relative stability in financing conditions in a weaker global environment also underpins the stable outlook at A3.

Moody's has also affirmed the backed senior unsecured US dollar trust certificates issued by Malaysia Sovereign Sukuk Berhad and the backed senior unsecured debt issued by Malaysia Sukuk Global Berhad, special purpose vehicles established by the Government of Malaysia at A3. 

Moody's has also affirmed the local currency ratings on the backed senior unsecured debt issued by Khazanah Nasional Berhad at A3. The Malaysian government guarantees these instruments.

Malaysia's long-term foreign currency (FC) bond ceiling is unchanged at A1 and its long-term FC deposit ceiling is A3. Malaysia's short-term FC bond and deposit ceilings are also unchanged at Prime-1 and Prime-2 respectively. 

These ceilings act as a cap on ratings that can be assigned to the FC obligations of entities other than the government that are domiciled in the country.

The long-term local currency (LC) bond and deposit country ceilings are unchanged at A1.

Moody's said further fiscal deficit reduction would be increasingly difficult and the debt burden will stay for longer.


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