S&P’s reaffirmation of Malaysia’s sovereign credit ratings at A- and revision of the outlook from Negative to Stable has been well received by the government.
Ministry of Finance finds the revised outlook as a reflection of Malaysia’s effective COVID-19 policy response, which has enabled a strong economic recovery, as well as the country’s resilience amidst an uncertain and highly challenging global landscape. According to the S&P report “The stable outlook reflects our expectations that Malaysia’s steady growth momentum and strong external position will remain in place over the next two years. We revised the outlook to stable in recognition of Malaysia’s consistently strong growth trend that is faster than sovereigns of similar income level”. In this regard, S&P expects Malaysia’s GDP to grow by 6.1% in 2022 and 5.0% in 2023. Given first-quarter growth of 5%, S&P’s forecast is in line with the Government’s expectation of higher growth in subsequent quarters, and in alignment with the higher end of Bank Negara Malaysia’s official estimate of 5.3 – 6.3%.
Since 1998, Malaysia has recorded current account surpluses, with RM58.7 billion recorded in 2021. Malaysia’s strong external position is bolstered further by sufficient international reserves and significant external assets held by banks and corporations. These factors, combined with Malaysia’s flexible exchange rate policy, support the country’s ability to withstand external shocks.
Malaysia’s economic recovery is expected to gain momentum with the full reopening of the economy and international borders. With an increase in economic activity and the resumption of development projects with high multiplier effects, the economy is on track to meet the projected growth this year.
Moving forward, MOF said the key national priorities for improving Malaysia’s long-term economic prospects and resilience will be digitalisation, technological adoption, and ESG/ sustainability. These will be pursued in tandem with the Government’s commitment to medium-term structural reforms to attract higher-quality investments and create high-skilled, well-paying jobs. All these initiatives will begin with Budget 2023, which carries the theme “Strengthening Recovery, Facilitating Reforms Towards Sustainable SocioEconomic Resilience of Keluarga Malaysia.”
The S&P’s report also mentioned that “Though Malaysia’s budget deficits remain high, it expects its growth dynamics to offset vulnerabilities associated with its weak fiscal settings. In addition, political commitment to resume fiscal consolidation post-pandemic is strong, in our view”. The Government remains fully committed to fiscal consolidation and ensuring fiscal sustainability. Supported by the gradual implementation of the Medium-Term Revenue Strategy which aims to improve the country’s revenue base, the Government will resume its consolidation path gradually and strategically as the recovery becomes more firmly entrenched. This will balance short-term fiscal requirements with long-term fiscal and economic sustainability.
As part of its reform initiatives to strengthen public finances by improving fiscal discipline, expenditure effectiveness, and transparency, the Government is also working to enact the Fiscal Responsibility Act (FRA). The FRA will strengthen the credibility of its fiscal policy conduct in order to achieve long-term fiscal sustainability and macroeconomic stability. Expected to be tabled by end of this year, the FRA will increase transparency and accountability in particular by publishing a tax expenditure statement, a midyear budget report, and a fiscal risk statement.
