PETALING JAYA: S&P Global Ratings has affirmed Malaysia’s sovereign credit ratings with a stable outlook, underpinned by strong economic growth, improving fiscal performance and monetary policy flexibility.
The rating agency affirmed Malaysia’s A- long-term and A-2 short-term foreign currency sovereign credit ratings, as well as its A long-term and A-1 short-term local currency ratings.
The outlook on the long-term ratings is “stable”.
“The stable rating outlook reflects our expectation that Malaysia’s growth momentum and prevailing policy environment will allow steady fiscal performance over the next two to three years,” S&P said in a statement.
It forecast Malaysia’s gross domestic product (GDP) to expand by 5.5% in 2026, following 5.2% growth in 2025, supported by robust exports, household consumption, and sustained fiscal support.
The economy grew 5.7% year-on-year in the first half of financial year 2026 (1H26), driven by stronger electrical and electronics and semiconductor shipments amid artificial intelligence-related investments, alongside higher energy exports.
S&P said Malaysia has also emerged as South-East Asia’s leading data centre (DC) investment destination, attracting an estimated RM386bil in cumulative investment between 2021 and mid-2026, largely from global hyperscalers.
However, it cautioned that this rapid expansion is leading to energy and water resource constraints that could temper the pace of future investment absent expanded utility capacity.
S&P expects growth to moderate in 2H26 amid tensions in the Middle East, global trade policy uncertainties and potential supply disruptions in the agriculture commodity sector.
“We forecast the economy will grow 5% annually on average over 2026 to 2029. With this, Malaysia’s 10-year weighted- average per capita GDP growth will be 3.7%, above the global median for peers at similar income levels.
“We project Malaysia’s GDP per capita will reach US$15,600 in 2026, lower than that of most peers in the same rating category,” it said.
On public finances, S&P said Malaysia remains on a gradual fiscal consolidation path, forecasting the general government deficit to narrow to 3.1% of GDP in 2026 from an estimated 3.3% in 2025.
It said continued revenue reforms and subsidy rationalisation would be key to further improving the country’s fiscal position, although elevated energy prices could increase the subsidy burden.
Meanwhile, S&P flagged rising private-sector external borrowings as a potential pressure point for Malaysia’s external position.
Malaysia’s total external debt stood at RM1.51 trillion, or 70.1% of GDP, at end-June 2026, with 44% comprising short-term debt. S&P attributed part of the increase to corporate borrowing to finance specialised IT and DC equipment amid the digital investment upcycle.
S&P said it could raise Malaysia’s ratings over the next two to three years if the country’s external position improves materially, or fiscal outcomes outperform its forecasts.
Conversely, the ratings could come under downward pressure if political stability deteriorates to the extent that policymaking becomes materially less predictable, or if the trend in real GDP per capita growth falls to levels comparable with peers.
