RAM Ratings has reaffirmed Malaysia’s respective global, Asean and Malaysia domestic-scale sovereign ratings of gA2/stable/gP1, seaAAA/stable/seaP1 and AAA/stable/P1.

The ratings reflect the country’s resilient economic growth and the government’s fiscal consolidation efforts while the country’s external indicators were still supportive of its current ratings, although high government and household debt levels remain concerns.

“Malaysia’s economic growth, estimated at 5.8 percent in 2017, exceeds our initial expectation of 4.5 percent due to rapid export growth amid a broad-based recovery in global economic conditions.

“Resilient growth in 2017 is also indicative of the domestic economy adjusting to previous structural reforms,” said RAM Ratings in a statement today.

Investment demand is anticipated to improve amid a broad-based capacity build up across various sectors and ongoing large development projects, said the rating agency.

Meanwhile, Malaysia’s import demand is projected to accelerate between 2019 and 2021, premised on the expectation of existing and upcoming infrastructure projects, and may lead to some narrowing of current account surplus during this period.

In line with robust global economic conditions, Malaysia’s current account surplus is estimated at 2.4 percent of gross domestic product (GDP) for 2017, outperforming RAM Ratings’s initial forecast of 1.0 percent.

The current account is expected to remain in surplus at 2.0 percent of GDP in 2018 amid continued global demand growth.

The government’s fiscal deficit target of 2.8 percent of GDP under Budget 2018, compared to an estimated 3.0 percent of GDP in 2017, was achievable given the economic conditions as well as the gradual recovery in oil price, and underscores its commitment to long-term fiscal consolidation, said RAM Ratings.

“Although the likelihood of overspending is higher in the lead up to the 14th general election, there has been some evidence of improved budgetary discipline in recent years,” it added.

The federal government debt remains elevated despite an anticipated decline in the debt level to 50.3 percent of GDP by end-2018 from an estimated 51.2 percent last year.

RAM Ratings said the government’s debt burden translated into a relatively high debt service-to-revenue ratio of 12.9 percent in 2018 – higher than those of Malaysia’s peers in the region.

Similarly, the government’s contingent liabilities stayed significant at 16.9 percent of GDP in the first half of 2017, posing a continuous risk to its fiscal position.

“This ratio is estimated to rise to 18.4 percent by 2023, due to the development of large projects as well as the government’s routine commitments to housing and higher education loan agencies,” said RAM Ratings.

- Bernama