Moody's: M'sia sovereign rating stable but with rising public debt

SINGAPORE: Malaysia’s A3 sovereign rating—with a stable outlook—is anchored by resilient growth and a strong external position, although debt levels continue to rise as deficits remain relatively wide, said Moody’s Investors Service.

In its “Credit Analysis: Malaysia” annual update issued yesterday, it said the stable outlook balanced the initial gains from the government’s efforts at administrative reform and economic restructuring against structural weaknesses in the government’s finances.

It said government revenue was still reliant on hydrocarbon-based receipts, while the subsidy bill remained a main driver of expenditure growth.

It further noted that fiscal policy has been increasingly constrained as debt levels rise towards the debt ceiling of 55 per cent of gross domestic product (GDP).

The government has reiterated its commitment to the narrowing of the fiscal deficit and implementing associated reforms, but the ruling coalition’s weaker electoral mandate could slow the pace of fiscal consolidation.

The current account surplus has eroded due to a deterioration in export demand against the backdrop of strong domestic economic activity.

At the same time, the report said Malaysia’s external accounts continued to be healthier than most similarly-rated peers.

Capital market depth, large buffer of foreign exchange reserves and a favourable debt structure also guard against a disruptive reversal of the non-resident accumulation of Malaysian government debt.

Following the parliamentary elections in May, policy continuity supports near-term growth prospects, although political noise is expected to persist in the near term.

The report also stated that Malaysia’s relatively large banking system poses manageable risks, while an improved assessment of the country’s capacity and willingness to service cross-border payments has led to higher foreign currency bond ceilings, as announced in January 2013.

The report classified Malaysia’s economic strength as moderate to high; institutional strength as moderate; government financial support as high; and susceptibility to event risk as low.

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