MOF welcomes Moody's credit rating of country's sovereign

 

The government welcomes Moody's Investors Service's (Moody's) affirmation of Malaysia's sovereign credit rating at A3 with a ‘stable’ outlook.

The Finance Ministry said in a statement yesterday that the affirmation of this rating reflects the country's determination to maintain the momentum of economic growth and resilience despite facing a challenging and uncertain global environment.

In line with the Malaysia Madani vision, the ministry said the government is committed to driving inclusive and sustainable growth, restoring confidence in public institutions and governance and defending social justice for all Malaysians.

“The government will continue to work to further strengthen economic growth and attract more investment while focusing on initiatives to control inflationary pressure and reduce the burden on the people.

“The government is also committed to implementing fiscal reforms and controlling debt levels to ensure a strong economic structure as well as an authoritative institutional framework in managing public finances,” said the ministry.

According to the statement further, Moody's expects Malaysia's real Gross Domestic Product (GDP) growth to moderate to 4.5 percent in 2023 following the moderate global economic situation further affecting external demand for manufactured products despite increased commodity exports, recovery in the tourism sector and strengthening of the labour market.

In the medium term, Moody's projects Malaysia's real GDP growth at around 5.0 percent by 2025, approaching potential output growth supported by better demographics than equivalent A-rated countries, strong investment levels and higher demand from developed countries, the statement said.

The ministry said Moody's expects the performance and resilience of Malaysia's economy to improve, supported by various growth drivers and Malaysia's participation in the global value chain, including stronger foreign investment in high-value industries.

Moody's also said medium-term growth will continue to be supported by the country's integration into regional and global supply chains as well as higher economic competitiveness that can contribute to a large foreign trade surplus.

Moody's also noted other factors influencing growth include Malaysia's advantages compared to rapidly developing regional markets in terms of infrastructure quality, higher education and training, labour and product market efficiency and the use of technology, said the statement.

High level of economic complexity

Moody's also stated that Malaysia continues to show a high level of economic complexity, reflecting the intensity of knowledge on the export of key goods such as electrical and electronic products.

Moody's also recognised the ability of Malaysian institutions to deal with various challenges through the implementation of effective monetary and macroeconomic policies as well as the resilience of the banking system as a result of strict regulatory measures by the central bank.

Moody's also takes into account the improvement of transparency in the reporting of contingent liabilities and the publication of the Medium Term Fiscal Framework which showcases the effectiveness of Malaysia's fiscal policy.

Moody's expects Malaysia's efforts to implement governance reforms including the Fiscal Responsibility Act to improve fiscal accountability and the Government Procurement Act will be able to address the issues of waste and corruption.

In Moody's view, this reform gives a clear meaning to the government's efforts to implement fiscal consolidation and debt stability, according to the ministry.

The ministry said Moody's also expects the fiscal deficit to decrease to 5.0 per cent of GDP in 2023 with a slower fiscal consolidation trajectory in 2024 and 2025 in line with the official projection of 3.6 per cent in 2025, following a limited revenue base and high expenditure commitments.

Moody's also expects the government's debt burden to decrease to 61 per cent of GDP in 2024 and emphasises that there is a low risk of contingent liabilities.

As such, Moody's stated that deep domestic capital markets have balanced the weakness of the current fiscal position, while interest rates and the government's yield curve have returned to normal pre-pandemic levels and remain stable, the ministry added.

The ministry said, however, Moody's is also of the view that reforms are needed to expand the revenue base since the country's revenue base is one of the lowest compared to countries with an equivalent rating of A; and the government's high expenditure commitment covering the sustainability of pensions, debt service payments and subsidies.

In fact, Moody’s considers the current level of debt and contingent liabilities poses a risk to the government's borrowing capacity, the ministry added.

- Bernama