Trending Now
16 February 2023. Thursday
Brickfields, Kuala Lumpur. (Photo by Low Yen Yeing/The Edge)
KUALA LUMPUR (Feb 16): Fitch Ratings has affirmed Malaysia’s long-term foreign-currency issuer default rating at “BBB+” with a stable outlook.
In a statement on Wednesday (Feb 15), the international rating agency said Malaysia’s ratings balance a diversified economy with strong medium-term growth prospects against high public debt, a low revenue base relative to the operating expenditures, and political uncertainty that hinders long-term policymaking.
Fitch said it expects gross domestic product (GDP) growth to moderate to 4.0% in 2023 (BBB median: 2.4%) and 4.8% in 2024, from an exceptional 8.7% in 2022, when the lifting of Covid-19 restrictions and government-relief measures led to a rapid and broad recovery.
“In 2023, we expect services to continue to gain from resilient domestic demand, contained inflation and a recovery in tourism-related sectors from the reopening of China.
“Manufacturing and exports are likely to face headwinds from weaker global demand for electronics and commodities. The medium-term growth trend of 4.0-5.0% remains robust,” it said.
High government debt
Fitch said it expects the general government debt-to-GDP ratio to decline from 2024, on strong GDP growth amid gradual consolidation.
It said the ratio is expected to fall to about 73% by end-2023 (BBB median: 55.6%), from a peak of 77.6% in 2021.
“Our debt figures include ‘committed guarantees’ on loans by government-linked companies and 1Malaysia Development Bhd’s (1MDB) net debt, which in 2021 totalled 14.2% of GDP.
“The upcoming 1MDB global bond due March 2023 of US$3 billion, or 0.7% of GDP, will be fully redeemed and financed by government domestic issuance,” it said.
The rating agency said fiscal policy plans of the newly elected government will only become clearer when the full Budget 2023 is retabled on Feb 24, but deficit reductions will be gradual, as the government is likely to avoid resorting to unpopular revenue measures.
“We expect the central government deficit to decline to an average of around 4.5% of GDP in 2023-2025.
“The main upside risks to our projections include greater expenditure rationalisation and substantial revenue mobilisation measures, such as reintroducing the goods and services tax,” it said.
