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Sovereign

MARC Ratings affirms sub-sovereign rating of AA- on Terengganu

29 August 2025

Access the full report here.

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Contacts

Kamal Zharif Jauhari
+603-2717 1779/ zharif@marc.com.my

Revina Sidhu
+603-2717 2906/ revina@marc.com.my

Dr Ray Choy
+603-2717 1770/ raychoy@marc.com.my

MARC Ratings has affirmed its sub-sovereign credit rating of AA- with a stable outlook on the state of Terengganu, based on the rating agency’s sub-sovereign rating scale. This rating is unsolicited and based on publicly available information. Terengganu’s rating is underpinned by the continued strength in its downstream oil and gas industries, namely refined petroleum and chemicals, alongside a manageable fiscal position. However, Terengganu remains constrained by structural economic limitations, a narrow revenue base, and heightened exposure to commodity price volatility.

Terengganu’s downstream industries — particularly refined petroleum and chemicals — account for around 95% of its manufacturing output and have historically outperformed the rest of the state’s economy. The sub-sector improved in 2024, expanding by 3.9% (2023: 0.3%). Natural resources remain pivotal to Terengganu’s fiscal profile, historically accounting for up to 80% of total revenue.

Conversely, Terengganu’s heavy dependence on oil and gas poses challenges. The high concentration in petroleum-based activities exposes the state to external shocks from volatile commodity markets and global energy transitions. Moreover, downstream growth has not sufficiently translated into broader economic expansion or employment gains.

Reflecting its economic limitations, the state’s decreasing consolidated funds and weaker revenue-to-GDP over time have weighed on fiscal flexibility, with reserves continuing to be drawn down and room for development spending limited. In response, the state has initiated measures to diversify its revenue base. These include the “Demi Masa Depan Terengganu” initiative to develop rare earth resources and the Green Technology Master Plan Malaysia 2017-2030, aimed at building alternative and sustainable revenue streams.

The stable outlook reflects MARC Ratings’ expectation that Terengganu will continue to benefit from steady oil royalty receipts and adequate federal government support for its operational and infrastructure requirements. A sustained deterioration in revenue and reserves without offsetting measures, or a weakening in federal–state relations, could exert downward pressure on the rating.

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