MARC is of the view that the government transition post-General Election 14 has no rating impact on Malaysia’s sovereign credit rating. Under MARC’s national scale, the government of Malaysia is rated AAA as it has the lowest relative credit risk in the country.

MARC does not expect any significant shift in the long-term macro policy direction at this juncture. Economic growth will remain resilient on the back of economic policies that are generally proactive and practical, supported by strong macroeconomic and prudential policy frameworks. Bank Negara Malaysia’s effective monetary policy, for example, is one of the key factors contributing towards Malaysia’s economic success.

Malaysia’s fiscal and debt management performance, however, are sovereign credit rating constraints. While the federal government debt-to-gross domestic product ratio has moderated recently, debt in absolute terms has risen over the years. By end-2017, government debt had risen by 50.6% from its end-2011 level, while debt guaranteed by it had risen by more than 90% over the same period.

Political developments have raised risk perceptions, particularly about fiscal sustainability. This is especially with reference to the new government’s pledge to, among other things, remove the Goods and Services Tax (GST) which accounted for roughly 20% of total federal government revenue in 2017. While it is not surprising to see knee-jerk reactions in the market pertaining to fiscal sustainability issues, it should be pointed out that the GST is only one of many variables in the budget balance equation.

These are very early days of the new government and further policy clarity with regard to fiscal policy measures will be necessary in order to give a fair assessment of the budgetary landscape. Notwithstanding this, current developments are deemed positive from a longer term perspective.

Contacts:
Quah Boon Huat, +603-2717 2931/ boonhuat@marc.com.my;
Nor Zahidi Alias, +603-2717 2936/ zahidi@marc.com.my.