Thursday 28 Mar 2024
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KUALA LUMPUR (Jan 11): Moody's Investors Service has affirmed Malaysia's issuer and senior unsecured bond ratings at A3 and cut the outlook to stable from positive.

In a statement today, the ratings agency said the key drivers of the outlook revision are the deterioration in Malaysia's growth and external credit metrics due to external pressures over the past year, and macro-financial risks posed by system-wide leverage, which remains high.

Moody's said despite progress on fiscal consolidation, Malaysia's public debt burden and debt affordability will see only limited improvement over the outlook horizon.

On the rationale for the revision, Moody's said the decision to stabilise Malaysia's A3 government bond rating at A3 rather than at A2 balances the negative impact of changes in the external environment on Malaysia's growth, external balance and reserves since the assignment of a positive outlook in November 2013, together with the risks posed by existing domestic imbalances, against the positive impact of the fiscal consolidation seen since then.

It said the assignment of a positive outlook to Malaysia's A3 government bond rating reflected Moody's view that continued improvements in the government's balance sheet could further enhance Malaysia's fundamentals.

"The period since then has indeed seen further fiscal consolidation, including through the implementation of a goods and services tax and the rationalisation of fuel subsidies," it said.

Moody's, however, said the impact on the government's balance sheet has been, and will continue to be, limited.

"That partly reflects changes in the external environment which have reduced government revenues over the period. Those environmental changes have also undermined Malaysia's external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves.

"And alongside rising external exposure, material domestic imbalances continue to pose a risk to growth and the financial system. Household debt levels remain high by the standards of Malaysia's peers," it said.

On what could move the rating up or down, Moody's said the stable outlook suggests that the upside and downside risks are balanced.

"Nonetheless, upward pressure on the sovereign's rating could arise from a greater convergence in debt metrics with similarly-rated peers, accompanied by improvements in debt affordability and fiscal deficit reduction.

"Conversely, a significant worsening in Malaysia's debt dynamics — possibly arising from an inability to manage the impact of lower crude oil and agricultural commodity prices — on the fiscal accounts or the crystallisation of large contingent liabilities could exert downward pressure on the rating," it said.

 

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