Moody's affirms Malaysia's A3 rating, maintains stable outlook

KUALA LUMPUR: Moody’s Investors Service today affirmed the Malaysian government’s local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3 with a stable outlook.

In a statement today, the rating agency said the rating affirmation reflects Moody’s expectations that Malaysia’s economic diversification and competitiveness and the government’s access to robust sources of domestic financing will persist as credit strengths, helping to mitigate fiscal risks that have risen following the Covid-19 pandemic, including an increased debt burden and weakened debt affordability.

Moody’s said it also expects key economic policymaking institutions in the country to maintain their credibility and independence despite the heightened political noise that has led to four changes in government since 2018, although social pressures may dampen policymakers’ resolve to execute deeper reforms over the next one to two years.

It said the stable outlook reflects Moody’s view that risks to the credit profile remain consistent with the A3 rating level based on current assumptions.

"On the positive front, Malaysia’s economic performance and resilience have the potential to be bolstered with an influx of foreign investment in high-value industries as companies reconfigure their regional supply chains, supporting stronger levels of growth than we currently expect,” it said.

The rating agency concurrently affirmed the foreign currency ratings on the backed senior unsecured debt issued by Malaysia Sovereign Sukuk Bhd, Malaysia Sukuk Global Bhd, and Malaysia Wakala Sukuk Bhd, special purpose vehicles established by the Malaysian government, at A3.

The associated payment obligations are, in Moody’s view, direct obligations of the government.

The rating agency also said that Malaysia’s local and foreign currency country ceilings remain unchanged at Aa1 and Aa2, respectively.

It noted that the five-notch gap between the local currency ceiling and the sovereign rating is supported by policymaking institutions that remain transparent and effective despite recent political uncertainties, as well as the country’s strong external position.

"The one-notch gap between the foreign currency ceiling and the local currency ceiling takes into consideration Malaysia’s history of imposing capital controls, although the size of domestic savings and effective policies reduce the risk of volatile capital flows and potential transfer and convertibility restrictions in very low probability scenarios of the government seeing a need to impose them.

"These ceilings typically act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country,” it shared. - Bernama