Fitch affirms A- rating for Malaysia, 5.8 percent growth in 2021

CORONAVIRUS | Fitch affirms Malaysia’s “A-” rating and projects 5.8 percent growth in 2021 as the country battles against the Covid-19 pandemic.

In confirming this, Finance Minister Tengku Zafrul Tengku Abdul Aziz said that Fitch Ratings maintained the country’s rating for its Long-Term Foreign-Currency Issuer Default Rating (IDR) and projected growth, while having revised the outlook from stable to negative.

“Malaysia has responded to the global health crisis and synchronised worldwide economic shock in a timely, decisive and comprehensive manner. The recently launched RM260 billion economic stimulus package, dubbed Prithaitn, had outlined its three main thrusts: “Protect the people, support businesses and strengthen the economy”.

“Prihatin’s public health, fiscal, monetary and financial measures are aimed at protecting lives and vulnerable groups in society, alleviating businesses’ cash flow pressure and preserving jobs.

“Collectively, Malaysia’s economic stimulus measures are expected to add 2.9 percentage points to its 2020 GDP growth. These comprehensive measures would place Malaysia on a stronger footing to benefit from the projected global recovery in 2021,” Tengku Zafrul said in a media statement issued this afternoon.

The minister noted that despite the sizable fiscal outlay in the economic stimulus packages, the government’s commitment towards fiscal discipline has not wavered and to ensure limited medium-term implication to public finance, the measures introduced are one-off, temporary and time bound.

He said that as these measures are non-recurring expenditures, fiscal consolidation efforts would resume once health and economic conditions stabilise, and that this is backed by the government’s positive track record of fiscal consolidation, where the fiscal deficit has declined by half from -6.7 percent of GDP in 2009 to -3.4 percent of GDP for 2019.

“The government will continue to focus on governance and structural reforms to place the country on a firmer footing. The government remains committed to a reform agenda ensuring sound governance, strengthening institutions and combating corruption even as it pursues existing initiatives with the establishment of the Debt Management Office and the upcoming enactment of a Fiscal Responsibility Act in 2021.

“The medium-term fiscal strategy will be enumerated in the Fiscal Outlook and Federal Government Revenue Estimate Report that will be issued together with the 2021 Budget in October 2020,” he said.

Position of strength, a healthy financial system

Tengku Zafrul (photo) noted that while the novel coronavirus pandemic poses some risk to financial stability, Malaysian banks are now much more resilient compared to previous crises.

“In particular, the strong buffers of the banking system that have been built over the years and sound risk management practices are expected to mitigate the impact of any deterioration in credit quality and support continued lending by banks to the economy.

“Notably, excess capital buffers of banks stand at RM121 billion, more than three times the buffer during the 2008/09 Global Financial Crisis,” he said, adding among others that net impairments remain low at only 1.0 percent of total banking system loans, and that the sector’s Liquidity Coverage Ratio at 148 percent stands well above the minimum requirement of 100 percent.

“These buffers, along with sound and prudential risk management practices, place banks in a good position to support lending activities and the overall Malaysian economy,” he said.

Tengku Zafrul said that Malaysia continues to maintain a healthy external position with substantial external assets by banks and corporations, a current account surplus and adequate level of international reserves, with the country’s foreign currency external assets continuing to exceed its foreign currency external liabilities.

“As at end-2019, Malaysia’s net foreign currency external asset position stood at a sizable RM924 billion, as 94.5 percent of external assets are denominated in foreign currency compared to 41.4 percent of total external liabilities. Together with the flexible exchange rate, these will continue to serve as important buffers against potential external shocks.

“Reinforcing Malaysia’s external resilience is our highly liquid and deep domestic government bond market and the presence of strong domestic institutional investors. This has enabled Malaysia to substantially reduce reliance on foreign currency financing.

“As a result, about 96 percent Malaysia’s federal government debt is issued in ringgit and therefore, not subject to currency mismatches. The decline in foreign holdings of government bonds from a peak of 34 percent in 2016 to around 21.5 percent currently has also mitigated the impact on borrowing costs,” he said.

Tengku Zafrul added that Malaysia has entered this unprecedented period from a position of strength, with a healthy financial system, strong domestic institutional investors, adequate buffers and robust policy frameworks that have been developed over the years. 

He said these factors, as well as ongoing efforts to further strengthen the country’s policy frameworks, would continue to serve the Malaysian economy well during the present challenging phase.

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