MOF welcomes reaffirmation of Malaysia's A- credit rating

MP SPEAKS | The Ministry of Finance welcomes S&P Global Ratings’ (Standard and Poor’s) affirmation of Malaysia’s issuer credit rating at A- with a stable outlook on July 3, 2019.

The reaffirmation demonstrates its confidence in Malaysia’s positive economic outlook, strong institutional profile, sound economic fundamentals and prudent debt management.

The reaffirmation also shows that the increase in the government’s direct debt does not affect Malaysia’s sovereign credit ratings, especially when the government’s overall debt and liabilities have been reduced.

Healthy economic growth

Among the key drivers of the rating is Malaysia’s healthy growth prospect.

The World Bank projects Malaysia to grow by 4.6 percent this year. A low and stable inflation rate of 0.2 percent for March, April and May is encouraging consumption growth.

Moreover, Bank Negara Malaysia’s decision to cut its Overnight Policy Rate (OPR) by 25 basis points to three percent in May has eased lending cost for consumers.

This can be seen, among others, from the 13 percent year-on-year increase for total vehicle sales for the January-May 2019 period.

Additionally, despite the ongoing trade war between China and the United States, Malaysia’s exports have been rising above expectations for the second straight month due to trade diversion.

In May 2019, exports grew 2.5 percent to RM84.1 billion from RM82.1 billion a year ago. The 2.5 percent growth is above the 2.2 percent market consensus as compiled by Bloomberg (Table 1).

As a result of the continuous export growth, the trade surplus for the first five months of 2019 has risen by 4.3 percent to RM56.8 billion, compared to RM54.5 billion in the same period last year.

Approved foreign direct investment (FDI) across all sectors for the first quarter of 2019 rose 73.4 percent to RM29.3 billion versus RM16.9 billion a year ago.

The first quarter of 2019 approved FDI growth was driven by a 127 percent increase in approved manufacturing FDI to RM20.2 billion from RM8.9 billion a year ago.

Sound debt management

S&P acknowledges the government’s efforts to restore its finances through rigorous fiscal management, including in managing its overall debt and liabilities.

Although the government’s direct debt has risen to 51.2 percent of GDP in 2018 from 50.1 percent in 2017, it is only one component of the government’s overall debt and liabilities.

The other components are committed government guarantees and finance leases, as well as other liabilities including 1MDB debt that the government is compelled to service directly.

As announced earlier, the government has successfully cut its overall debt and liabilities level as a percentage of GDP by 3.9 percentage points from 79.3 percent in 2017 to 75.4 percent in 2018 (Table 2).

The Ministry of Finance is confident of reducing the government’s fiscal deficit from 3.7 percent of GDP in 2018 to 3.4 percent this year.

Ongoing institutional reforms

The recently established Debt Management Committee will build on these successes and ensure that the government’s debt management practices are in line with global best practices.

Furthermore, the Pakatan Harapan administration has made great strides in combating corruption – an institutional reform that is seen as a credit positive.

On July 1, 2019, the Parliament passed a special motion to require all MPs, senators and their immediate family members to declare their assets by Oct 1, 2019.

The country’s economic stability and strong financial institutions remain the important pillars in driving Malaysia’s development, and in maintaining Malaysia's sovereign credit ratings high at A- or A3.

Growth and reform measures carried out will rebuild trust in the government, improve the domestic business environment, while enhancing the welfare of the rakyat through the creation of better job opportunities and wage growth.

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LIM GUAN ENG is Finance Minister and Bagan MP. - Mkini