MoF: S&P's reaffirmed credit ratings for Malaysia a sign of confidence in country's outlook despite higher debt

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KUALA LUMPUR (July 7): S&P Global Ratings' (SP&'s) affirmation of Malaysia's issuer credit rating with a stable outlook on July 3, is a sign of its confidence in Malaysia's positive economic outlook, despite an increase in the government's direct debt, says Finance Minister Lim Guan Eng.

S&P's rating of A- for Malaysia also demonstrated its confidence in the country's strong institutional profile, sound economic fundamentals and prudent debt management, Lim said in a statement today.

"The reaffirmation also shows that the increase in government’s direct debt does not affect Malaysia’s sovereign credit ratings, especially when the government’s overall debt and liabilities have been reduced," Lim said.

Among the key drivers of the rating, Lim said, is Malaysia's healthy growth prospects, as he cited The World Bank's forecast of a 4.6% growth for the country this year, amid low and stable inflation that is encouraging consumption growth.

"Additionally, despite the ongoing trade war between China and the United States, Malaysia’s exports have been rising above expectations for the second straight month due to trade diversion. In May 2019, exports grew 2.5% to RM84.1 billion from RM82.1 billion a year ago. The 2.5% growth is above the 2.2% market consensus as compiled by Bloomberg," the minister said.

He noted that trade surplus for the first five months of 2019 has climbed 4.3% to RM56.8 billion from RM54.5 billion in the same period a year ago, as a result of the continuous export growth.

He also reiterated that approved foreign direct investment (FDI) across all sectors for the first quarter of 2019 jumped 73.4% year-on-year to RM29.3 billion from RM16.9 billion, driven by a 127% y-o-y surge in approved manufacturing FDI to RM20.2 billion from RM8.9 billion previously.

"S&P acknowledges the government’s efforts to restore its finances through rigorous fiscal management, including in managing its overall debt and liabilities. Although the government’s direct debt has risen to 51.2% of GDP in 2018 from 50.1% in 2017, it is only one component of the government’s overall debt and liabilities. 

"The other components are committed government guarantees and finance leases, as well as other liabilities including 1MDB debt which the Government is compelled to service directly," Lim said, as he noted again that the government has cut its overall debt and liabilities as a percentage of GDP by 3.9 percentage points from 79.3% in 2017 to 75.4% in 2018.

MoF confident of reducing deficit to 3.4% from 3.7%
The ministry, he added, is confident of reducing the government's fiscal deficit from 3.7% of GDP in 2018 to 3.4% this year.

"The country’s economic stability and strong financial institutions remain the important pillars in driving Malaysia’s development, and in maintaining Malaysia's sovereign credit ratings high at A- or A3. Growth and reform measures carried out will rebuild trust in the Government, improve domestic business environment, while enhancing the welfare of the rakyat through the creation of better job opportunities and wage growth," he added.