FITCH Ratings (Fitch) has maintained Malaysia’s sovereign credit ratings at BBB+ with a ‘stable’ outlook, underpinned by a diversified economy and export base.
Its Asia-Pacific sovereigns associate director, Kathleen Chen, said strong medium-term growth prospects and current account surpluses have also supported the rating strength.
“We expect gross domestic product (GDP) to rebound in 2024. Resilient domestic demand has been driving the recovery from the COVID-19 pandemic.
“Continued investments in the manufacturing sector and the recovery in external demand are expected to bolster manufacturing output and exports in 2024,” she said at Fitch’s Asia-Pacific Sovereign Credit Highlights webinar today.
According to her, Malaysia had a good record of approved foreign investments in the manufacturing sector in recent years, and she expects more investments to be realised in the near term.
“The country’s diversified export base and competitive manufacturing ecosystem can help it benefit from global supply chain diversification,” added Chen.
She also pointed out that improvement in public finances, such as a downward trend in general government debt to GDP closer to peer medians, is among the factors that could lead to a positive rating upgrade.
“An improvement in government standards relative to the ‘A’ category also could drive up the rating action.”
Moreover, Chen noted that although political stability has improved recently, political considerations may still have a role to play in long-term structural reforms or fiscal adjustments.
“Malaysia’s near-term fiscal consolidation is expected to be mainly driven by the ongoing subsidy rationalisation.
“Malaysia is shifting to a more targeted subsidy mechanism, starting with electricity last year and recently diesel. So, we expect spending on subsidies to continue declining, but part of the savings will be rechannelled to cash assistance for low-income groups,” she further added.
Fitch Asia-Pacific sovereigns head Thomas Rookmaaker said most countries in the Asia-Pacific region received stable rating outlooks, except for China, which received negative rating actions.
“There is continued property sector weakness in China, a possibility of delayed global monetary easing, and heightened geopolitical risk in Asia, particularly linked to US-China tensions, Taiwan and the South China Sea.” – June 27, 2024
