MOF: International agencies confirm Malaysia’s strong credit ratings

-A +A

KUALA LUMPUR (Jan 23): The Ministry of Finance (MOF) said three of the world’s largest international credit rating agencies have confirmed Malaysia’s strong credit ratings, as the country continues its journey to restore its fiscal position.

In a statement, the Ministry pointed out that Moody’s recent annual update stated that the country’s economic growth will continue to be stronger than its a-rated peers, while its strong diversified economy is partially offsetting the negative impact of the Government’s high debt level.

In December, the ratings agency had maintained the Government’s credit ratings at A3 on the back of Malaysia’s commendable growth, deep domestic capital market and solid institutional framework.

The agency also said that a near-term change in credit rating is unlikely.

The Ministry also highlighted the November 2018 report by Fitch Ratings, which reaffirmed Malaysia’s sovereign ratings at ‘A-’ with stable outlook.

The ratings agency said the 2019 Budget is in line with the country’s path of fiscal consolidation over the medium term and expects debt ratios to fall in the coming years, provided that gross domestic production (GDP) growth remains in line with the revised outlook for growth of 4.9% and 5% for 2019 and 2020 respectively.

“Most tellingly, Fitch concluded by saying that ‘the new government was elected on pledges to raise governance standards and address corruption, particularly with respect to public finances’,” said MOF.

The institutional reforms listed in the Budget, such as the migration towards accrual accounting by 2021, the introduction of a Fiscal Responsibility Act by 2021, the introduction of a Government Procurement Act by 2019, the application of zero-based budgeting for the 2019 Budget and the open tender and zero tolerance for corruption and non-compliance of budgeting procedure were viewed as credit-positive by the ratings agency.

Similarly, S&P Global Ratings noted the Government’s commitment to gradual fiscal consolidation and expects the one-off pressures such as the funding of goods and services tax (GST) rebates should abate after 2019. S&P maintained Malaysia’s credit rating at ‘A-’.

The Ministry acknowledged the concerns expressed by the ratings agencies over the Government’s narrowing revenue base following the removal of GST, which was replaced with the sales and services tax (SST) and said that these issues are being dealt with.

“The concerns are being addressed, as can be seen by the encouraging increase in direct tax collection last year which rose by RM13.7 billion or 11.1% year-on-year to a record high of RM137 billion.

“This proves that not only is the Government on track with its consolidation exercise but the economy had continued to grow last year, with corporate tax amounting to 51.1% of direct taxes collected,” said MOF, adding that the Government collected RM5.4 billion in SST revenue over the last two months of 2018, 34% higher than the projected collection of RM4 billion.

It said improved tax collection strategies and continued economic growth will ensure that Malaysia meets its fiscal consolidation objectives and that the Tax Reform Committee and Public Finance Committee established last year will help the Government diversify its revenue base.