KUALA LUMPUR: Although Malaysia’s debt burden is elevated and has consistently been above median levels, it is able to service its debts, according to rating agency Moody’s Investors Service.
“Malaysia’s debt metrics is weaker, but it does not mean it cannot service its debts,” said Anushka Shah, a vice-president of Moody’s overseeing Malaysia’s sovereign risk.
According to her, default risk is limited because there is a low foreign-currency exposure to government debt and most domestic debt is held by large and stable investors.
Moody’s puts Malaysia’s direct debts to GDP at 51%. This ratio does not take into account loans guaranteed by the government, which has put total debts at over RM1 trillion.
Briefing the media on Malaysia, Shah said she has cut 2019 real GDP growth forecast to 4.4%, down from 4.7% projected in January. She has reduced GDP growth for next year to 4.3% from 4.5%.
“Growth in Malaysia will slow this year and next year because of its highly open economy and uncertainty in the global trade front,” she said, adding China slowdown would have a similar impact on Malaysia.
Bank Negara cut economic growth forecast for this year to 4.3%-4.8% from 4.9% when it released its 2018 annual report on March 27. Malaysia reported 4.7% growth last year.
Despite slower growth projected, Shah said the economic fundamentals in Malaysia “are still strong and remain stronger than the median for A-rated sovereigns.”
In its annual credit analysis in January, the international rating agency gave Malaysia an A3 rating with stable outlook. This means that a change in the A3 rating is unlikely to take place in the near term.
Dr Micheal Taylor, a managing director for Moody’s, said although 2019 is quite challenging for the sovereign and banking sector, “Malaysia has the strength to offset these challenges”.
Moody’s expected global growth to decelerate, funding conditions to remain quite tight and the financial market to stay volatile.
He believed China, projected to grow 6% for this year and next year, would not experience a sharp downturn.
The region would continue to see risk in global trade even if the United States and China come to a settlement to end their trade war as the United States is also having trade issues with other nations, Taylor added.
On banking, Simon Chen sees sluggish growth among Malaysia banks as “sentiment on the ground (eg loans growth) is weak”.
Chen, another vice-president of Moody’s, observed that digitisation transformation is taking place in Malaysia’s banks.