Malaysia's robust economic growth set to continue this year: Moody's

PETALING JAYA: Moody’s Investors Service said the robust growth seen in the Malaysian economy last year will likely continue into 2018 and over the medium term, supporting the sovereign’s credit profile.
The rating agency said Malaysia’s gross domestic product (GDP) growth should average 5.2% this year, underpinned by a pipeline of large infrastructure projects that will stimulate public and private investment.
It added that Malaysia’s A3 stable credit profile is supported by its large and diversified economy, ample natural resources and robust medium-term growth prospects.
However, Moody’s said the country’s elevated system-wide leverage – including in the household sector – poses credit challenges.
Furthermore, it said, although the trend of fiscal deficit reduction has been maintained, the implementation of further fiscal consolidation remains a major credit challenge.
“That said, a favourable debt structure and large domestic savings help to mitigate risks arising from a high government debt burden.
“Despite current account surpluses, Malaysia continues to be exposed to potential volatility in capital inflows, in part due to an active foreign investor presence,” it added, noting foreign reserve adequacy remains low when compared with A-rated peers.
According to the Moody’s report, upward pressure on the sovereign’s rating could arise from a material convergence in government debt levels with similarly rated peers, accompanied by improvements in debt affordability and continued fiscal deficit reduction; and a reduction in external vulnerability risks, such as through a containment of the rise in short-term external debt liabilities, or through effective use of macroprudential tools to limit volatility in capital flows durably.
Meanwhile, downward rating pressure could come from a significant worsening in Malaysia’s debt dynamics, possibly arising from a renewed fall in commodity prices or the crystallisation of contingent liabilities; a deterioration in the balance of payments position or material capital flight, which puts further pressure on reserves; and a long-lasting negative shock to the economy, possibly amplified by high household debt levels.