MARC Ratings has assigned a sub-sovereign credit rating of AA- with a stable outlook to the state of Kedah, based on the rating agency’s sub-sovereign rating scale. This is an unsolicited rating based on public information. Kedah’s rating is underpinned by its rising economic growth potential, supported by an expanding industrial base, and generally prudent fiscal management. Nonetheless, Kedah’s revenue mobilisation and debt levels have room for improvement.
Kedah’s economy has shown a consistent growth rate, with real gross domestic product (GDP) rising to RM51.8 billion in 2023 and recording an average growth rate of 3.0% over 2019–2023. While the state’s economic scale remains modest, contributing 3.3% to Malaysia’s GDP, Kedah plays a strategic role as the country’s leading rice producer and benefits from the positive spillover effects of adjacent Penang’s expanding high-technology sector. In addition, Malaysia’s New Industrial Master Plan 2030 (NIMP 2030) and National Semiconductor Strategy (NSS), along with growing global semiconductor demand and the rise of artificial intelligence, are expected to reinforce Kedah’s long-term growth prospects and support the state’s evolving economic landscape.
On the fiscal front, Kedah has demonstrated consistent expenditure prudence despite constrained revenues. Between 2019 and 2023, the state achieved a small but positive average fiscal surplus of 0.1% of GDP. This was aided by one-off revenue gains, including special federal grants and elevated land-related receipts. These surpluses allowed Kedah to steadily accumulate reserves, with consolidated funds increasing to RM474.5 million in 2023 from RM74.6 million in 2018.
Efforts are underway to broaden Kedah’s revenue base, which remains a key priority. Initiatives include compensation mechanisms for granary maintenance, levies on jetty operations, and the potential monetisation of rare earth resources. These are part of a broader state strategy to raise annual revenue to RM1 billion by 2027, which would significantly strengthen fiscal capacity and reserve buffers. Looking ahead, the state’s relatively low development spending could be scaled up as fiscal headroom improves, supporting the state’s wealth over time.
Kedah’s debt profile is elevated but remains manageable given ongoing federal transfers. The state has one of the highest debt-to-GDP ratios among Malaysian states, and one of the lowest consolidated funds-to-total debt ratios. However, a significant portion of this debt is tied to water infrastructure projects, and ongoing restructuring efforts with Pengurusan Aset Air Berhad are expected to ease this credit burden over the medium term.
The stable outlook reflects Kedah’s improving economic prospects and manageable fiscal position. Sustained improvements in economic development, a more favourable agriculture policy, higher fiscal reserves and a more diversified revenue base could improve the state’s credit profile. Conversely, downside risks could arise should revenue-enhancing measures fall short of expectations, potentially leading to a more constrained fiscal space.