INTERNATIONAL rating agency Fitch has affirmed Malaysia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A-‘ but revised the outlook from stable to negative.
According to the Ministry of Finance (MOF), Fitch has also projected the Malaysian economy to register a growth of 5.8% in 2021.
“It has been observed that the sovereign ratings outlook for several economies, both advanced and emerging, have also been lowered,” said finance minister Tengku Datuk Seri Zafrul Tengku Aziz in the statement.
He added that while the justifications are unique to each country, the revision in the ratings outlook of these countries broadly reflects weaker growth prospects and fiscal positions compared to the period prior to the global health crisis.
Malaysia has responded to the global health crisis and synchronised worldwide economic shock in a comprehensive manner. It recently launched a RM260 bil economic stimulus package, dubbed Prihatin, which has three main thrusts: protect the people, support businesses and strengthen the economy.
“Collectively, Malaysia’s economic stimulus measures are expected to add 2.9 percentage points to its 2020 GDP growth,” said Zafrul.
Noting that these comprehensive measures would place Malaysia on a stronger footing to benefit from the projected global recovery in 2021, he assures that as these measures are non-recurring expenditures, fiscal consolidation efforts will resume once health and economic conditions stabilise.
The government had also steadily reduced the deficit from -6.7% of GDP in 2009 to -3.4% of GDP in 2019.
Zafrul also said the government will continue to focus on governance and structural reforms to place the country on a firmer footing. The government remains committed to a reform agenda ensuring sound governance, strengthening institutions and combating corruption even as it pursues existing initiatives with the establishment of the Debt Management Office and the upcoming enactment of a Fiscal Responsibility Act in 2021.
The medium-term fiscal strategy will be enumerated in the Fiscal Outlook and Federal Government Revenue Estimate Report that will be issued together with the 2021 Budget in October 2020.
Malaysia continues to maintain a healthy external position with substantial external assets by banks and corporations, a current account surplus and adequate level of international reserves.
Malaysia’s foreign currency external assets continue to exceed its foreign currency external liabilities. As at end-2019, Malaysia’s net foreign currency external asset position stood at a sizeable RM924 bil, as 94.5% of external assets are denominated in foreign currency compared to 41.4% of total external liabilities.
The decline in foreign holdings of government bonds from a peak of 34% in 2016 to around 21.5% currently has also mitigated the impact on borrowing costs.
“While Covid-19 poses some risks to financial stability, Malaysian banks are now much more resilient compared to previous crises,” said Zafrul.
In particular, the strong buffers of the banking system that have been built over the years and sound risk management practices are expected to mitigate the impact of any deterioration in credit quality and support continued lending by banks to the economy.
Notably, excess capital buffers of banks stand at RM121 bil, more than three times the buffer during the 2008/09 Global Financial Crisis. Net impairments remain low at only 1.0% of total banking system loans.
The banking industry’s Liquidity Coverage Ratio at 148% stands well above the minimum requirement of 100%. This signifies sound and prudential risk management practices and places banks in a good position to support lending activities and the overall Malaysian economy.
Malaysia has entered this unprecedented period from a position of strength, with a healthy financial system, strong domestic institutional investors, adequate buffers and robust policy frameworks, the statement added. – April 9, 2020
