MARC Ratings has assigned an unsolicited sub-sovereign credit rating of AAA with a stable outlook to the state of Johor. This rating reflects Johor’s resilient and expanding economy, persistent fiscal surpluses, exceptionally low debt levels, and stable political environment that underpins its long-term development trajectory.

Johor holds a significant position in Malaysia’s economy, contributing RM148.2 billion or 9.5% to the national real gross domestic product (GDP) in 2023. This strength is anchored by a robust services sector, which accounts for 54% of its GDP, alongside the country’s largest agricultural sector, contributing nearly a fifth of national agricultural output. The state’s strategic proximity to Singapore has generated substantial economic spillovers, particularly in the retail, hospitality, and investment sectors, reinforcing Johor’s economic momentum. The upcoming Johor-Singapore Special Economic Zone (JS-SEZ), with its ambitious development agenda, is expected to catalyse higher level growth by attracting high-value industries.

In terms of fiscal management, Johor’s debt levels are among the lowest in Malaysia, having remained at a low level of 0.1% of GDP from 2021 to 2023, supported by disciplined fiscal management and a consistently growing tax revenue base. Johor has sustained an impressive track record of fiscal surpluses over the past decade, with the sole exception of a deficit recorded in 2021 due to pandemic-related revenue shortfalls. This prudent fiscal management has enabled the state to accumulate substantial reserves, which reached RM2.4 billion in 2023, up from RM1.8 billion in 2013. Nonetheless, the state consistently maintains a high level of development expenditure, allocating 39.4% of its total expenditure towards development between 2019 and 2023.

While Johor’s revenue structure is robust, the state could further benefit from strategies aimed at expanding its diversification as it remains reliant on traditional sources such as quit rent and land title premiums. As such, the state has introduced several revenue-enhancing measures for 2025 to build additional fiscal buffers to support long-term fiscal sustainability. The consolidated funds-to-expenditure ratio, while having moderated to 143.3% (2019–2023) from 174.5% (2014–2018), still reflects strong liquidity and financial flexibility.

Furthermore, Johor benefits from strong and consistent political representation. Historically, Johor’s political stability has been notably characterised by the longstanding dominance of the Barisan Nasional (BN) coalition, which has successfully secured the majority in all but one state election. The current alignment with the federal Unity Government enhances policy coordination and facilitates the implementation of national economic blueprints at the state level.

The stable outlook reflects our expectation that Johor will maintain its disciplined fiscal management practices and sustain healthy fiscal surpluses over the medium term. This is reinforced by Johor’s rising growth prospects and development agenda. Robust revenue inflows from established sources, such as quit rent and land title premiums, alongside strong economic activity, are expected to support the state’s financial stability. Looking ahead, while further growth in revenue will strengthen fiscal buffers, efficient execution of development spending will remain crucial to preserving Johor’s strong credit profile.