MARC Ratings has affirmed Kedah’s sub-sovereign credit rating at AA- with a stable outlook, based on the rating agency’s sub-sovereign rating scale. This is an unsolicited rating based on public information. The rating affirmation reflects Kedah’s favourable growth prospects, supported by an expanding industrial base, its strategic role in national food security, and generally prudent fiscal management. These strengths are moderated by a narrow revenue base, rising expenditure commitments, and modest liquidity buffers.
Kedah’s economic growth prospects have strengthened with the expansion of its industrial base, particularly the electrical and electronics manufacturing ecosystem centred on the Kulim Hi-Tech Park. Between 2021 and 2025, the state’s real gross domestic product (GDP) grew at an average rate of 4.1%, reaching RM56.3 billion in 2025. The state continues to benefit from spillover effects from neighbouring Penang, a regional hub for semiconductor and high-technology manufacturing.
Kedah also remains strategically important to Malaysia’s agricultural sector as the country’s largest paddy producer, accounting for around 37% of national supply. The state and federal governments are pursuing initiatives to modernise the sector, including the Paddy Estate Management Model (EMM) 2.0, the Five-Season Paddy Planting Over Two Years programme and the RM1.28 billion Jeniang Water Transfer Project. These are aimed at improving yields and strengthening the resilience of Kedah’s paddy production in support of national food security.
On the fiscal front, Kedah maintained a near-balanced fiscal position between 2020 and 2024. However, expenditure pressures are mounting, reflecting higher emolument costs following the second phase of the Public Service Remuneration Scheme (SSPA), alongside the state’s efforts to increase development expenditure. Development expenditure rose to 30.1% of total expenditure in 2024, from 22.2% in 2022. In its 2026 Budget, Kedah projects a fiscal deficit, which is expected to persist as expenditure growth outpaces revenue mobilisation.
Broadening the state’s revenue base therefore remains important to strengthen fiscal resilience. Tax revenue accounted for more than 40% of total income between 2020 and 2024, although this relatively high share reflects the narrowness of Kedah’s overall revenue base. The state has several revenue-enhancing initiatives which may support its fiscal sustainability, including securing federal compensation for granary maintenance, reviewing local authority assessment taxes and monetising the emerging rare earth element sector.
Kedah’s debt and liquidity profile has room for further improvement. Total public debt stood at approximately RM2.0 billion in 2024, with the state’s debt-to-revenue ratio at 259.6%. About two-thirds of total debt in 2024 was associated with water infrastructure; as of August 2026, the state government has novated RM1.1 billion of the water debts to Pengurusan Aset Air Berhad (PAAB). Meanwhile, liquidity buffers remained modest as at 2024, with consolidated funds covering only 20.1% of gross debt and reserves equivalent to 53.0% of expenditure.
The stable outlook reflects MARC Ratings’ expectation that Kedah will maintain prudent fiscal management alongside stable economic growth. Improvements in revenue mobilisation and liquidity buffers, particularly through higher consolidated funds relative to debt and expenditure, could support the state’s credit profile. Conversely, downward pressure could arise if federal–state cooperation deteriorates or the revenue base narrows further, resulting in sustained fiscal deficits and rising debt levels.