Corporate, Economy, Featured and Exclusive, Finance - January 30, 2015

Moody’s affirms M’sia’s A3 rating, positive outlook

By G. Sharmila

KLCC Kuala Lumpur KL Generic 01 011214International rating agency Moody’s Investors Service has affirmed the government bond and issuer ratings of the Malaysian government and said that the outlook remains positive.

In a statement today, Moody’s said that the key drivers of the decision are as follows:

  • The government’s intention to adhere to its policy of deficit reduction, driven by fiscal reforms that have already bolstered the government’s resilience to cyclical commodity price shocks; and
  • The resistance of Malaysia’s fundamental credit strengths—notably macroeconomic stability, domestic capital market depth, and a favorable government debt structure—to a more adverse external economic environment, lower oil prices, and global financial market volatility.

“When Moody’s last revised the sovereign’s outlook in November 2013, Moody’s noted greater prospects for fiscal reform and the stabilisation of the government’s debt dynamics, against the backdrop of continued macroeconomic stability in the face of external headwinds.

“While we have seen ongoing fiscal deficit reduction and actual implementation of significant reform, the external challenges faced by the country have risen. Consequently, Moody’s has affirmed Malaysia at A3 and maintains a positive outlook on the rating,” the ratings agency said.

The ratings agency said that the effectiveness of Malaysia’s policy response in the year ahead to challenges already evident—namely, lower global crude oil prices and lackluster global growth—and to those challenges that are expected—namely the normalisation of interest rates by the US Federal Reserve—will influence the future trajectory of Malaysia’s sovereign rating.

Commenting on what could change the rating, Moody’s said that upward pressure on the sovereign’s rating could arise from a continued track record in fiscal deficit reduction and stability in the affordability and refinancing of government debt.

“Conversely, a significant worsening in Malaysia’s debt dynamics—possibly arising from an inability to manage the impact of lower crude oil and agricultural commodity prices—on the fiscal accounts or the crystallisation of large contingent liabilities, could exert downward pressure on the rating,” it said.