PETALING JAYA: Moody’s Investors Service’s move to affirm Malaysia’s A3 rating is testimony to the government’s strong fiscal discipline and robust medium-term growth prospects amid the Covid-19 pandemic, Tengku Datuk Seri Zafrul Tengku Abdul Aziz says.
The Finance Minister said yesterday the rating agency acknowledged Malaysia’s economic prospects due to the earnest containment measures, including four comprehensive economic stimulus packages valued at RM305bil, or about 20% of gross domestic product (GDP).
“It also demonstrates Moody’s confidence in Malaysia amidst unprecedented credit rating adjustments globally, with Credit Rating Agencies (CRAs) taking more than 220 negative rating actions since the onset of the pandemic, ” he said in a statement.
The International Monetary Fund (IMF), he said, estimated the global economy contracted by 3.5% in 2020, while facing an estimated cost of US$22 trillion from 2020 to 2025.
As for Malaysia, Tengku Zafrul said these four economic stimulus packages announced throughout 2020 are expected to have contributed up to four percentage points to GDP and on track with a projected growth target of 6.5% to 7.5% in 2021.
This growth forecast is in line with projections by agencies such as the IMF and World Bank at 7.0% and 6.7%, respectively.
Moody’s, had in a statement yesterday, affirmed the government’s local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3.
“Malaysia’s medium-term growth prospects will remain strong and its macroeconomic policy-making institutions will continue to be credible and effective, which provides resilience to the sovereign credit profile, ” it said.
The rating agency continues to expect the government to remain committed to its gradual path of fiscal consolidation over the next two to three years, the rise in debt burden is unlikely to rapidly reverse.
“The stable outlook reflects Moody’s view that risks to the credit profile remain consistent with the A3 rating level based on current assumptions, ” it said.
The reaffirmation by Moody’s contrasted with Fitch Ratings’ move on Dec 4 last year to downgrade Malaysia’s long-term foreign-currency issuer default rating (IDR) to BBB+ from A- with a stable outlook.
Fitch had pointed out that the depth and duration of the Covid-19 crisis have weakened several of Malaysia’s key credit metrics, though the authorities responded swiftly to the crisis, with material relief measures for affected individuals and businesses.
Fitch had stated the impact on Malaysia’s economy has been substantial, and has added to Malaysia’s fiscal burden, which was already high relative to peers going into the health crisis.
However, Moody’s said it does not expect the Covid-19 pandemic to have a sustained negative impact on Malaysia’s economic model.
As such, it said the current and any subsequent waves of infections will delay, but not materially hinder, the economy’s eventual return to high growth rates.
“The authorities’ track record of effective macroeconomic policies, including prudent fiscal policies, has also continued to lengthen, despite ongoing noise in the political landscape, ” it said.
Moody’s expects real GDP growth to rebound in 2021, growing by around 6% after a sharp contraction last year.
This is in part driven by base effects, although the government’s fiscal package, including ongoing support for wages, public infrastructure spending, and incentives for private investment will support domestic demand, it said.
The credibility and effectiveness of the country’s institutional framework, particularly in the implementation of macroeconomic policies was also highlighted by Moody’s.
Tengku Zafrul pointed out this was evidenced by the structured and systematic policy measures implementation by 53 ministries and agencies since March 2020.
The government’s commitment towards effective execution of policy measures was also exemplified by the formulation of the country’s largest national budget at RM322.5bil for 2021, he said.
This was further boosted by the recently-announced RM15bil Permai Assistance Package that saw the introduction of fresh measures, and improvement of existing initiatives either through additional allocations, speedier implementation or expansion of scope, he said.
Tengku Zafrul reaffirmed the government’s commitment to medium-term fiscal consolidation as well as ensuring fiscal sustainability of the country.
Over the past decade, he said, Malaysia had successfully reduced its fiscal deficit from 6.7% of GDP to 3.4%.
Moody’s said post-2021, it expects the deficit will narrow to around 4% of GDP by 2023, consistent with the government’s 4.5% of GDP average deficit target over 2021-23.
“Through judicious expenditure reprioritisation efforts, Malaysia’s fiscal deficit in 2020 is expected to be amongst the lowest within the A-category, an exceptional achievement in the current, extremely challenging environment. We aim to reduce our deficit target from 6% of GDP in 2020 to 5.4% of GDP in 2021, and to an average of 4.5% over the medium term, ” he said.
Tengku Zafrul said the government was confident Malaysia’s sound economic fundamentals, strong fiscal discipline and decisive policy measures would “help us respond strategically and proactively under this challenging Covid-19 environment, while minimising permanent economic scarring from the pandemic, to place the nation firmly on its path towards recovery.”