S&P affirms Malaysia’s credit ratings but flags political risks

 Rating agency warns Malaysia’s sovereign ratings may be lowered if political instability rears its ugly head.

S&P Global Ratings says political stability is imperative for Malaysia to achieve further economic reforms and fiscal consolidation.

PETALING JAYA:

S&P Global Ratings has affirmed Malaysia’s sovereign credit ratings on the back of its robust economic growth, improving fiscal performance and monetary policy flexibility.

While the rating agency gave a positive assessment of the country’s economy, it also warned the ratings may be lowered over the next 24 months if political stability in Malaysia deteriorates.

In affirming its A– long-term and A-2 short-term foreign currency sovereign credit ratings as well as its A long-term and A-1 short-term local currency ratings, S&P also said the outlook on its long-term ratings is “stable”.

It said Malaysia’s “consistently strong economic growth” and high degree of monetary policy flexibility underpin the sovereign ratings. In addition, its external position is supported by moderate current account surpluses and a large export base.

Malaysia’s external position has “historically been a ratings strength”, with the country having consistent current account surpluses for more than two decades, it added.

“The stable rating outlook reflects our expectation that Malaysia’s growth momentum and prevailing policy environment will allow steady fiscal performance over the next two to three years,” S&P said in a statement.

It said Malaysia’s strong growth was led by the AI-driven investment cycle and high energy prices against a backdrop of relative political stability – an important factor in the government’s ability to achieve further fiscal and debt consolidation.

Net general government debt as a share of gross domestic product (GDP) decreased marginally to 69.5% in 2025, and S&P expects it to fall further to 67.8% this year.

Importance of political stability

It noted that the Pakatan Harapan-led coalition appears to have achieved a degree of political stability following a period of frequent changes in government between 2018 and 2022.

“While the relative stability of the Anwar Ibrahim administration has resulted in a more predictable policymaking environment, policy uncertainties may grow as the prospects of general elections increase.

“Political stability will be imperative to achieve further economic reforms and fiscal consolidation,” it said.

S&P also noted that Malaysia’s institutions have supported generally effective policymaking. “We believe the depth of institutional strength mitigates the risk of political instability,” it added.

The rating agency also flagged rising private-sector external borrowings as a potential pressure point for Malaysia’s external position.

The country’s total external debt stood at RM1.51 trillion, or 70.1% of GDP, at end-June 2026. It attributed part of the increase to corporate borrowing to finance specialised IT and data centre equipment amid the digital investment upcycle.

S&P also said it could raise Malaysia’s ratings over the next two to three years if its external position improves materially or fiscal outcomes outperform its forecasts.

Other international rating agencies have also reaffirmed Malaysia’s sovereign credit ratings. Moody’s affirmed Malaysia at A3 in July while Fitch maintained it at BBB+ in its December 2025 review, both with a stable outlook.

This means that Malaysia holds investment-grade sovereign credit ratings from all three major global rating agencies. - FMT