Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on March 29, 2018

KUALA LUMPUR: Fitch Ratings, which believes Malaysia’s positive growth momentum will continue this year and the next, has affirmed Malaysia’s long-term foreign-currency issuer default rating at “A-”, with a stable outlook.

In a statement yesterday, Fitch said the rating reflects positive growth trends for the country, supported by sustained current account surpluses and the large external assets of its private sector, while government debt and deficit levels fell.

“Central government debt declined to 50.8% of GDP (gross domestic product) by end-2017 from 52.7% of GDP at end-2016. However, the rating is constrained by weaker governance standards and lower levels of income per capita and human development compared to the median for sovereigns rated in the ‘A’ category,” it noted.

Referencing World Bank’s governance indices, Fitch said governance in the country has deteriorated since 2015, except in terms of regulatory quality and rule of law.

Fitch said Malaysia’s GDP should grow at 5.4% in 2018 and 2019, supported by domestic and external demand, while investment spending would be supported by the implementation of infrastructure projects and growth in manufacturing and services sectors.

“A general election (GE) is due by August 2018, but it is unlikely in our view to lead to a significant shift in the direction of economic policy. Downside risks to the economy stem from threats of trade protectionism and tighter global monetary conditions,” it added.

Although it sees federal government expenditure rising ahead of the GE, it believes the 2018 deficit target of 2.8% of GDP will be met, while federal government debt will decline to slightly under 50% of GDP.

“Nevertheless, we continue to view sizeable contingent liabilities as a risk to broader public finances,” it said. The country is also vulnerable to negative external developments given its high degree of openness and large foreign holdings of government debt, it added.

 

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