KUALA LUMPUR (April 9): Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at “A-” but revised the outlook from stable to negative, said the Ministry of Finance. 

In a statement today, MoF said the ratings agency has also projected the Malaysian economy to register a growth of 5.8% in 2021. 

Commenting on the projection, Finance Minister Tengku Datuk Seri Zafrul Aziz said in the statement: “Malaysia has responded to the global health crisis (Covid-19) and synchronised worldwide economic shock in a timely, decisive and comprehensive manner.”

He referred to the recently launched RM260 billion Prihatin economic stimulus package, which is expected to add 2.9 percentage points to Malaysia’s 2020 GDP growth.

“These comprehensive measures would place Malaysia on a stronger footing to benefit from the projected global recovery in 2021,” he said. 

Despite the sizeable fiscal outlay in the economic stimulus packages, the government’s commitment towards fiscal discipline has not wavered. To ensure limited medium-term implication to public finance, measures introduced are one-off, temporary and time bound. 

“As these measures are non-recurring expenditures, fiscal consolidation efforts will resume once health and economic conditions stabilise,” he added.

“Further supporting this is the government’s positive track record of fiscal consolidation where the fiscal deficit has declined by half from -6.7% of GDP in 2009 to -3.4% of GDP in 2019.”

On governance and structural reforms, Zafrul said efforts will continue even as it pursues existing initiatives — with the establishment of the Debt Management Office and the upcoming enactment of a Fiscal Responsibility Act in 2021.

“The medium-term fiscal strategy will be enumerated in the Fiscal Outlook and Federal Government Revenue Estimate Report that will be issued together with the 2021 Budget in October 2020,” he said. 

On Malaysia’s external position, Zafrul pointed out that foreign currency external assets continue to exceed its foreign currency external liabilities, which serves as important buffers alongside flexible exchange rate against potential external shocks. 

As at end-2019, Malaysia’s net foreign currency external asset position stood at a sizeable RM924 billion, as 94.5% of external assets are denominated in foreign currency compared with 41.4% of total external liabilities. 

“Reinforcing Malaysia’s external resilience is our highly liquid and deep domestic government bond market and the presence of strong domestic institutional investors. 

“As a result, about 96% Malaysia’s federal government debt is issued in ringgit and therefore not subject to currency mismatches. 

“The decline in foreign holdings of government bonds from a peak of 34% in 2016 to around 21.5% currently has also mitigated the impact on borrowing costs,” he added.

Zafrul also hailed the increased resilience of Malaysian banks and its risk management practices. 

“Notably, excess capital buffers of banks stand at RM121 billion, more than three times the buffer during the 2008/09 global financial crisis. 

“Net impairments remain low at only 1.0% of total banking system loans. The banking industry’s liquidity coverage ratio at 148% stands well above the minimum requirement of 100%. 

“These buffers, along with sound and prudential risk management practices, place banks in a good position to support lending activities and the overall Malaysian economy,” he said. 

“Malaysia has entered this unprecedented period from a position of strength, with a healthy financial system, strong domestic institutional investors, adequate buffers and robust policy frameworks that have been developed over the years. 

“These factors and ongoing efforts to further strengthen Malaysia’s policy frameworks will continue to serve the Malaysian economy well during this challenging phase,” he added.