KUALA LUMPUR (Jan 8): Malaysia's real gross domestic product (GDP) growth should slow to 4.7% in 2019 and 4.5% in 2020, after averaging around 5% during 2015-18, according to Moody's Investors Service.
In a statement today, Moody's said Malaysia's credit profile reflects the country's large and diversified economy with healthy medium-term growth prospects, and relatively high government debt that is partly offset by a favourable debt structure and large domestic savings.
It said external headwinds from trade protectionism will weigh on trade activity, while a review of infrastructure projects and slowing public spending will prove a further drag on growth.
"Nevertheless, economic expansion will still stay stronger than the median average for A-rated sovereigns, even taking moderating growth into account," it said.
Moody's findings were contained in its credit analysis titled "Government of Malaysia — A3 stable: Annual credit analysis" released today.
Moody's pointed out that the Malaysian government's recent fiscal policy choices, in particular abolishing the goods and service tax, will narrow its revenue base and reduce fiscal flexibility.
Moreover, it said Malaysia's debt burden, which is significantly higher than the A-rated median, will remain a credit constraint.
"However, deep domestic capital markets and high savings provide a stable funding pool for the government's debt, and partly offset these fiscal weaknesses.
"A solid institutional framework that includes effective monetary policy supports the country's credit profile. However, pervasive corruption will likely remain a challenge for the government, undermining policy effectiveness," it said.
Moody's said the stable outlook on the sovereign's rating indicates that a change in the rating is unlikely in the near term, with the rating balancing credit constraints — stemming from low debt affordability and high debt levels — against credit strengths, including resilient growth and a stable and broad funding base for Malaysia's debt, even in a weaker global environment.
It said the rating could face upward pressure if the scope for fiscal consolidation increases.
Conversely, Moody's said it would consider downgrading the sovereign rating if Malaysia's fiscal prospects weaken, or its debt burden increases.