Moody’s Investors Service has affirmed the Malaysian Government’s local and foreign currency issuer and senior unsecured debt ratings at A3, and opined that the country’s outlook remains stable.
In a statement today, Moody’s said the affirmation recognised that Malaysia’s fiscal strength has weakened.
“Government debt will stay high for longer and the Government’s fiscal policy choices will narrow the revenue base and reduce fiscal flexibility further.
“At the same time, robust growth potential, notwithstanding a slowdown in the next few years, and deep domestic capital markets continue to support the rating at A3.
“A solid institutional framework, including strong monetary policy effectiveness, also supports the credit profile, although in Moody’s view, the government will face hurdles to significantly rein in pervasive corruption,” the rating agency said.
Moody’s said the stable outlook balances credit constraints from low debt affordability and a high debt burden against inherent credit strengths, including resilient economic growth and a stable and broad funding base for the country’s debt.
“Relative stability in financing conditions in a weaker global environment also underpins the stable outlook at A3,” it said.
Moody’s has also affirmed the backed senior unsecured US dollar trust certificates issued by Malaysia Sovereign Sukuk Bhd and the backed senior unsecured debt issued by Malaysia Sukuk Global Bhd. The two firms are special purpose vehicles established by the Government.
“The payment obligations associated with these certificates are direct obligations of the Government. In Moody’s opinion, the payment obligations represented by the securities issued by these two special purpose vehicles are ranked pari passu with other senior, unsecured debt issuances of the Government. As such, ratings for the sukuk issuances mirror the Government of Malaysia’s issuer rating,” it said.
Moody’s has also affirmed the local currency ratings on the backed senior unsecured debt issued by Khazanah Nasional Berhad at A3. The Government guarantees these instruments.
“Malaysia’s long-term foreign currency (FC) bond ceiling is unchanged at A1 and its long-term FC deposit ceiling is A3. Malaysia’s short-term FC bond and deposit ceilings are also unchanged at Prime-1 and Prime-2 respectively,” the agency said.
“These ceilings act as a cap on ratings that can be assigned to the FC obligations of entities other than the Government that are domiciled in the country. The long-term local currency bond and deposit country ceilings are unchanged at A1,” it added.
Moody’s noted that the new Government has signalled a significant shift in policy priorities, towards supporting lower incomes and enhancing the transparency of public finances.
“The Government’s fiscal choices, most notably the abolition of the Goods and Service Tax (GST), will have long-lasting negative effects on revenue collection,” it said.
Moody’s added that the measures implemented and announced will lead to a concentration of the revenue base on oil-related revenues and a dependence on non-tax revenues, such as dividends from state-owned enterprises, that will limit fiscal flexibility in future years.