KUALA LUMPUR: Malaysia has surprised many who expected a ratings downgrade due to legacy issues from the previous government that loaded it with high debt and failed governance, Finance Minister Lim Guan Eng said.
Instead, the government had convinced S&P Global Ratings and Fitch Ratings to reaffirm Malaysia’s sovereign credit rating.
“Institutional reforms implemented by the current government to enhance fiscal transparency and address high-profile corruption cases that will gradually improve Malaysia’s governance indicators, have convinced both Fitch Ratings and S&P Global Ratings that Malaysia’s sovereign credit rating deserves to be reaffirmed,” Lim said in a statement today.
He welcomed Fitch Ratings’ confirmation of Malaysia’s sovereign credit ratings at A- with a stable outlook on July 18, which followed similar confirmation by S&P Global Ratings on July 3.
Lim said credit rating agencies assessed a government based on multiple factors. This included fiscal discipline, economic fundamentals, political stability and institutional quality.
Fitch expected Malaysia’s institutional quality to improve further over time due to the wider implementation of open tender, fiscal transparency, anti-corruption measures and institutional reform measures to promote accountability and fiscal responsibility.
“Clearly, Fitch’s affirmation proves again that the increase in direct debt has no adverse impact when the government’s overall debt and liabilities have been reduced as a percentage of the gross domestic product (GDP),” he added.
Lim said the government would continue to pursue institutional reforms, maintain political stability, fiscal transparency and accountability, managing the reduction of debts and liabilities, good governance and sustainable economic growth that were strong credit positives towards affirmation of Malaysia’s sovereign credit ratings.
Previous reports stated that the government’s total debt and liabilities as a ratio to GDP had been cut by 3.9 percentage points to 75.4 per cent as of end-2018, from 79.3 per cent at end-2017.
In The Reporters Without Borders’ World Press Freedom Index, Malaysia improved its ranking by 22 places to 123rd out of 180 countries in 2019, from 145th in 2018, which indicates that Malaysia has the freest press in Southeast Asia.
Malaysia had also advanced nine spots to 15th from 24th out of 190 countries in the Ease of Doing Business ranking published by the World Bank this year.
“The government is also confident of reducing its fiscal deficit to 3.4 per cent in 2019 from 3.7 per cent of GDP in 2018. This will help address any concerns over the government’s high level of indebtedness.
“It should be highlighted that Fitch believes the government’s debt level relative to the GDP will gradually decrease over the next few years, due to a clear fiscal consolidation plan outlined by the government,” Lim said.
The World Bank projects the Malaysian economy to expand 4.6 per cent this year and sales data collected by the Department of Statistics showed that wholesale and retail trade grew 5.6 per cent and 8.2 per cent year-on-year (YoY), respectively in January-May 2019.
“Low inflation enjoyed by Malaysian consumers is sustaining strong consumption growth. In May 2019, the consumer price index increased only marginally by 0.2 per cent YoY, which is unchanged from the previous month.”
During the January to May 2019 period, vehicles sales rose 13 per cent compared to the same period last year.
For the first half of 2019, Proton sales surged 60 per cent to 43,518 units, while Perodua’s sales increased by 4.0 per cenrt to 121,782 units compared to last year.
Lim noted that Malaysia’s industrial output was also growing despite external challenges arising from the China-US trade war. This was thanks to business relocation, trade and investment diversion, approved foreign direct investment (FDI) for all sectors rose 73.4 per cent to RM29.3 billion in the first quarter of 2019.
During the period, approved FDI growth was driven by a 127 per cent increase in approved manufacturing FDI to RM20.2 billion from RM8.9 billion in the same quarter last year.
Meanwhile, unemployment rate fell to 3.3 per cent in the same month, versus 3.4 per cent in April.
The banking sector remains well-capitalised with access to a liquid market, monitored by a competent and independent central bank.
“These positive developments point towards a sustainable GDP growth for the second quarter of 2019,” he said.