S&P said Malaysia is set to benefit from a strong recovery in the global semiconductor sector.
PETALING JAYA: S&P Global Ratings has reaffirmed its sovereign credit rating on Malaysia with a “stable” outlook, as it foresees the country’s steady growth momentum and strong external position, along with narrowing deficits, to hold over the next two years.
In a report yesterday, the international ratings firm maintained Malaysia’s A- long-term and A-2 short-term foreign currency sovereign credit ratings.
It also affirmed its A long-term and A-1 short-term local currency ratings on the country. S&P expects Malaysia to see “modest improvements in fiscal performance” over the next two to three years.
“Our ratings on Malaysia are underpinned by the country’s strong external position and monetary policy flexibility.
“In addition, its trend economic growth rate is faster than sovereigns of similar income level. We expect Malaysia’s fiscal deficits to narrow on the back of planned subsidy rationalisation measures, the phased implementation of which has begun.
“In our view, government debt stock remains elevated, but we anticipate it will decrease gradually over the forecast horizon. This will stem from strong economic growth and renewed political commitment to implement fiscal consolidation,” stated S&P.
It said Malaysia is set to benefit from a strong recovery in the global semiconductor sector. This would reinforce the country’s medium-term growth prospects that remain better than most other sovereigns at similar income levels.
“With the global semiconductor industry entering a new boom period from accelerating artificial intelligence computing needs, we believe Malaysia will be a key beneficiary.
“It has a mature electrical and electronics sector that supplies components and finished products to major global players.
“Supportive national policies such as the Madani Economic Framework and the New Industrial Master Plan 2030 would further augment longer-term economic expansion.”
S&P forecast the economy to grow on average 4.4% annually over 2025-2027. In 2024, the growth is projected to be at 4.3% on the back of improving external demand alongside robust private-sector investments.
With this, Malaysia’s 10-year weighted average per capita gross domestic product (GDP) growth will be 3%, which is above the global median for peers at similar income levels.
“We project Malaysia’s GDP per capita to be US$12,376 in 2024, lower than most peers in the same rating category but the third highest in South East-Asia, behind neighbours Singapore and Brunei.”
S&P also said Malaysia’s political stability is resulting in a more conducive policy-making environment that is enabling the gradual stabilisation of government finances.
The ratings agency also noted that a prudent implementation of the RON95 petrol subsidy would “quicken” Malaysia’s fiscal consolidation.
The biggest component of the central government’s subsidy bill remains fuel subsidies. In 2023, total subsidies and social assistance made up 18% of the government’s expenditure, of which fuel subsidies accounted for about 50% of the bill.
“For fiscal consolidation to take hold sustainably, on top of healthy economic growth, we believe the government will try to raise more revenue or reduce subsidies, or both.
“If revenue increases and subsidies reduce, the net change in general government debt may improve to be lower than the 3.7% of GDP that we forecast by 2027.”
Separately, Bernama reported that Fitch Ratings has maintained Malaysia’s sovereign credit ratings at BBB+ with a “stable” outlook, underpinned by a diversified economy and export base.
Fitch’s Asia-Pacific sovereigns associate director Kathleen Chen said strong medium-term growth prospects, as well as current account surpluses, support the rating strength, it quoted.
“We expect GDP to rebound in 2024. Resilient domestic demand has been driving the recovery from the Covid-19 pandemic. Continued investments in the manufacturing sector and the recovery in external demand are expected to bolster manufacturing output and exports in 2024,” Chen said in Fitch’s “Asia-Pacific Sovereign Credit Highlights” webinar.
She said Malaysia had a good record of approved foreign investments in the manufacturing sector in recent years, and expects more investments to be realised in the near term.
Chen added an improvement in public finances, such as a downward trend in general government debt to GDP closer to peer medians, is among the factors that could lead to a positive rating upgrade.
“An improvement in government standards relative to the A category also could drive up the rating action,” according to her.
