MARC has affirmed its public information foreign currency sovereign rating of AAA/stable on Malaysia under its national rating scale. The AAA rating reflects several credit strengths, including a competitive and well diversified economy. It was, for example, positioned relatively high at number 27 in the 2019 edition of the World Economic Forum’s Global Competitiveness Index 4.0 rankings. It is important to point out that Malaysia’s competitiveness has been evident in among other things, a persistent current account surplus, and consequently, a healthy external position. Due in part to this, as well as proactive and practical economic and monetary management, spillovers from episodic financial market volatility into the real economy have been minimal.
Key credit challenges include the disruptive coronavirus disease (COVID-19) pandemic and the recent crude oil price collapse. Not surprisingly, the pandemic is the most worrisome factor as there is still no vaccine to fight the coronavirus. Against this backdrop, economic and financial risks have risen. In the private sector, for example, the pandemic and the measures to contain its spread have severely impacted the balance sheets of corporates and households.
To mitigate the impact of the pandemic, the government, setting back fiscal consolidation, has announced a string of stimulus packages. Going forward, more measures could become necessary because we have yet to experience the full impact of the outbreak, as well as the measures to curb it. It is important to note that while the fiscal implications will be significant over the short to medium term, the unorthodox policies rolled out to support the pandemic-hit economy are positive for Malaysia’s overall credit profile over the long term.
The stable outlook reflects our expectation that broad economic policy continuity – despite the change in government – will be maintained and economic and monetary management will remain proactive and practical in the face of the COVID-19 pandemic. It also reflects our expectation that Malaysia’s external position will remain healthy as headwinds rise. We are nevertheless cautious on the outlook as the pandemic is still developing, with its attendant impact on oil prices. We also cannot discount the country’s uncertain political landscape.
Going forward, positive evidence of the effectiveness of the government’s fiscal and monetary policy mix to mitigate the impact of the COVID-19 outbreak will improve Malaysia’s credit profile. It will, on the other hand, deteriorate if: a) the easing policy mix proves ineffective; b) the viral outbreak resurges and partial lockdowns are reintroduced; or c) oil prices stay at depressed levels for long.
Contacts:
Quah Boon Huat, +603-2717 2931/ boonhuat@marc.com.my;
Ummi Kalsom Yaacub, +603-2717 2934/ ummikalsom@marc.com.my;
Nor Zahidi Alias, +603-2717 2936/ zahidi@marc.com.my