Managing debt and liabilities
Clearly, Fitch’s affirmation proves again that the increase in direct debt has no adverse impact when the Government’s overall debt and liabilities have been reduced as a percentage of the GDP. As reported previously, the Government’s total debt and liabilities as a ratio to GDP has been cut by 3.9 percentage points to 75.4% as of end-2018, from 79.3% at end-2017.
The Government is also confident of reducing its fiscal deficit from 3.7% of GDP in 2018, to 3.4% in 2019, and this will help address any concerns over the Government’s high level of indebtedness. It should be highlighted that Fitch believes the Government’s debt level relative to the GDP will gradually decrease over the next few years, due to a clear fiscal consolidation plan outlined by the Government.
Sustainable economic growth is a plus
The World Bank projects the Malaysian economy to expand 4.6% this year. Sales data collected by the Department of Statistics Malaysia shows that wholesale and retail trade grew 5.6% and 8.2% year-on-year respectively in January-May 2019. Low inflation enjoyed by Malaysian consumers is sustaining strong consumption growth. In May 2019, the consumer price index increased only marginally by 0.2% year-on-year, which is unchanged from the previous month.
Fitch in its global report, also cited the 13% downturn in global semiconductor sales for the first half of 2019, compared to last year, as well as the cooling demand for both capital goods and car sales as factors that will slow down world trade growth. For Malaysia however, the numbers are still positive.
During the January to May 2019 period, the quantity of vehicles sold rose by 13% compared to the same period last year. For the first half of 2019, Proton sales surged 60% to 43,518 units whilst Perodua’s sales increased by 4% to 121,782 units compared to last year. Perodua has raised its 2019 sales projection, with its plants already operating at near full capacity, and will likely achieve the highest record annual sales this year.
Malaysia’s industrial output is also growing despite external challenges arising from the China-US trade war. Thanks to business relocation, trade and investment diversion, approved foreign direct investment (FDI) for all sectors rose 73.4% to RM29.3 billion in the first quarter of 2019, versus RM16.9 billion a year ago. The first quarter 2019 approved FDI growth was driven by a 127% increase in approved manufacturing FDI to RM20.2 billion from RM8.9 billion in the same quarter last year.