KUALA LUMPUR: Moody’s Investors Service has affirmed the government bond and issuer ratings of the Government of Malaysia at A3, while the outlook remains positive.
The international rating agency in a statement yesterday said the A3 ratings were based on the progress in fiscal reform and ongoing deficit reduction, credit concerns relevant to the rating action coupled with fundamental strengths remained intact.
This is despite lower commodity prices as well as global financial market volatility.
Moody’s expects the stability of dividend payments from Petronas (A1, stable) and expenditure rationalisation will help keep the government’s operating balance in surplus and consequently, its stock of debt under 55 per cent of Gross Domestic Product (GDP).
The rating agency also said despite the current challenges posed by lower commodity prices and financial volatility, it expects Malaysia to continue to exhibit faster growth, lower inflation, and a more robust external payments position than other A-rated countries.
The innate strength of the economy can be attributed in part to its diversification, namely its reliance on services and manufacturing as the key drivers of growth in recent years, it said.
Moody’s said while Malaysia’s fundamental strengths are not likely to be materially affected by several concerns, but the developments over the year ahead would better inform Moody’s credit assessments.
It concerns are on the high level of household debt in the context of a cooling residential property market after a rapid rise in prices in recent years.
Moody’s said another concern is whether Malaysia will maintain strengths in its external payments position, given sharply lower commodity prices, rising external debt, and possible global credit market volatility once the US Federal Reserve begins normalising interest rates.
However, in general, Moody’s believes that Malaysia is likely to sustain a structural current account surplus, and that foreign currency reserve adequacy will remain in line with similarly-rated peers.
The rating agency said the positive outlook reflects the likelihood that fiscal consolidation would be sustained notwithstanding a prolonged period of low prices of commodities.
It also said the continued fiscal consolidation, underpinned by relatively strong economic growth and favourable funding conditions for the government potentially supports a higher rating level. — Bernama