MARC Ratings has assigned an unsolicited sub-sovereign credit rating of AAA with a stable outlook to the state of Penang. The rating reflects Penang’s low debt burden, dynamic economy anchored by high value–added sectors, resilient labour market supported by sustained investment inflows, and stable political environment.
Penang has one of the most dynamic economies in Malaysia, contributing 7.4% to national gross domestic product (GDP) in 2024 and ranking as the fourth-largest state economy. Its growth engine is anchored by a well-developed manufacturing ecosystem, with the sector contributing around 46% to the state’s GDP. Within this, the electrical, electronics and optical sub-sector contributes approximately 74% of the total manufacturing output. Rising global semiconductor demand and the implementation of Malaysia’s National Semiconductor Strategy (NSS) are expected to further strengthen Penang’s high-value industrial base. The services sector, which made up 48.1% of the state’s GDP in 2024, continues to benefit from the state’s relatively high household purchasing power. Penang’s median monthly wage of RM2,934 in 2024 ranks among the highest nationally, supporting firm domestic demand and steady growth in consumer-oriented services.
A cornerstone of Penang’s credit strength is its negligible debt burden compared to other states. State debt declined by 31.7% between 2019 and 2023, reflecting consistent debt repayments and the absence of new borrowings. Over 2019–2023, Penang’s debt-to-GDP ratio averaged 0.04%, while its debt-to-revenue ratio averaged 7.7%. Debt per capita averaged just RM25.9, among the lowest levels nationally. Penang’s low leverage is partly attributable to the 2011 National Water Services Restructuring Initiative, which cut water liabilities by 91%.
Despite its low debt levels, Penang’s reserves remain among the strongest in Peninsular Malaysia, at nearly two times the Malaysian states’ median. Nevertheless, the state’s consolidated funds declined to RM1.5 billion in 2023 (2019: RM2.1 billion), mainly due to higher welfare-related spending during the post-pandemic recovery period. The moderation also highlights Penang’s structurally limited revenue-raising capacity, constrained by its smaller land base and limited natural resources. Looking ahead, several revenue-enhancement measures (including the first revision of quit rent rates since the mid-1990s, adjustments to liquor licence fees and entertainment duties, additional state land sales, and recovery of quit rent arrears) are expected to improve fiscal performance and support efforts to rebuild consolidated revenue reserves towards the RM1.0 billion target by 2028.
Penang’s political environment remains conducive to development plans. Alignment with the federal Unity Government and strong state-federal coordination continue to facilitate policy execution and infrastructure delivery, as reflected in the federal government taking over the Mutiara LRT line project through Malaysia Rapid Transit Corporation Sdn Bhd in 2024. Meanwhile, Penang’s inclusion in national initiatives such as the New Industrial Master Plan 2030 and the NSS underscores its strategic role in Malaysia’s industrial transformation and supports its long-term growth prospects.
The stable outlook reflects MARC Ratings’ expectation that Penang will maintain sound fiscal practices and a very low leverage position, supported by a dynamic economy anchored in high value–added sectors, a resilient labour market, and sustained investment inflows. Political alignment with the federal government provides policy continuity and supports predictable fiscal planning.