MARC Ratings has affirmed Terengganu’s sub-sovereign credit rating of AA- with a stable outlook, based on the rating agency’s sub-sovereign rating scale. This rating is unsolicited and based on public information. The rating affirmation reflects Terengganu’s continued strength in its downstream oil and gas industries, improving fiscal performance, and low debt burden. These strengths are moderated by structural economic constraints, a high dependence on federal transfers and oil-related revenue, and limited economic diversification.
Terengganu’s manufacturing sector remains heavily concentrated in its downstream industries, which represented approximately 95% of manufacturing output in 2025. Manufacturing contributed 35.6% of state gross domestic product (GDP) but contracted by 1.2% in 2025, reversing the 3.9% growth recorded in 2024. This contraction, alongside declines in mining and construction, weighed on overall GDP growth, which moderated to 1.6% in 2025 (2024: 4.5%). The state is pursuing diversification through renewable energy, green industries and specialty manufacturing. By September 2025, Terengganu had secured RM4.3 billion in committed investments, with 74% channelled towards manufacturing, including large-scale renewable energy projects.
Terengganu’s fiscal position improved in 2024, returning to a fiscal surplus of 0.5% of GDP after four consecutive years of deficits, supported mainly by higher federal transfers and special grants. The state’s debt profile remains favourable, with gross debt-to-GDP declining to 0.4% in 2024, while outstanding public debt fell to RM139.0 million. Consolidated funds also recovered to RM260.9 million from RM65.7 million in 2023, although liquidity remains relatively modest compared with national and peer medians.
Nevertheless, Terengganu remains constrained by its limited economic diversification and high reliance on externally derived revenue. Non-revenue receipts accounted for more than 80% of total revenue on average over 2020–2024, reflecting the significant role of federal transfers and petroleum-related receipts. The state’s dependence on the oil and gas sector also exposes its economy to commodity price volatility, while relatively low median wages and labour force participation indicate that the benefits of high-output industries have not fully translated into broader labour market outcomes.
The state is pursuing measures to broaden its economic and revenue base, including renewable energy development under the Pelan Induk Teknologi Hijau Terengganu 2030 and the development of non-radioactive rare earth elements. However, the contribution of these initiatives to state revenue is expected to materialise gradually. Meanwhile, the East Coast Rail Link Phase 1 had reached 95.1% completion as at mid-2026 and is targeted to commence operations as early as December 2026, ahead of the original January 2027 schedule. The project could strengthen connectivity and support investment and diversification over the medium term.
The stable outlook reflects MARC Ratings’ expectation that Terengganu will continue to receive adequate federal support and petroleum-related transfers for its fiscal and development needs, while maintaining its low debt position. Ongoing diversification initiatives and infrastructure developments are also expected to gradually strengthen the state’s economic base. Conversely, a sustained weakening in revenue performance, deterioration in liquidity buffers, or disruption to federal–state fiscal coordination could exert downward pressure on the rating.