Malaysia’s ’A-/A-2’ foreign currency ratings affirmed by S&P

Investing.com -- S&P Global Ratings affirmed Malaysia’s ’A-/A-2’ foreign currency and ’A/A-1’ local currency sovereign credit ratings on Friday, maintaining a stable outlook.

The rating agency cited Malaysia’s strong economic growth and high degree of monetary policy flexibility as key factors underpinning the ratings. Malaysia’s external position is characterized by moderate current account surpluses and a large export base.

S&P forecasts Malaysia’s economic growth will moderate to 4.2% in 2025, down from 5.1% in 2024, as external trade headwinds impact near-term momentum. The highly trade-oriented economy faces challenges from a potential slowdown in regional and global trade flows, as well as from a 19% tariff imposed on some Malaysian goods exports to the U.S. since August 7.

Despite these challenges, S&P expects Malaysia’s economy to grow at an average of 4.4% annually from 2025-2028. This would maintain the country’s 10-year weighted-average per capita GDP growth at 3.3%, above the global median for peers at similar income levels. GDP per capita is projected to reach nearly $14,000 in 2025.

The current Pakatan Harapan-led coalition government, formed after the November 2022 elections, has achieved a degree of political stability. This has created a more favorable environment for economic reforms and fiscal consolidation.

On the fiscal front, the Malaysian government plans to gradually reduce its deficit through subsidy rationalization and revenue measures. The government has already implemented reforms to diesel, electricity, water, and food subsidies, and broadened its sales tax and service tax framework in July.

S&P forecasts that net general government debt as a share of GDP will fall marginally to 70.5% this year from 70.7% in 2024. The rating agency includes government guarantees in its calculation of general government debt, which it estimates at 12.2% of GDP as of end-2024.

Malaysia’s current account surplus is expected to stabilize at about 2.3% of GDP over the next three years. However, the external position remains subject to market volatility, particularly given the high share of nonresident holders of ringgit-denominated government bonds, which account for about 21% of the total outstanding stock.

S&P notes that Malaysia’s ratio of gross external financing needs to current account receipts and usable reserves will average 99.5% over 2025-2028, falling below 100% from 2027 onward.

Inflation in Malaysia receded to 1.8% in 2024, and S&P expects it to remain stable at around 1.7% by the end of 2025, supported by softer global trade conditions and potentially higher supply of lower-cost goods imports.

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