Singapore, December 13, 2017 -- Moody's Investors Service ("Moody's"
says that the Government of Malaysia (A3 stable) demonstrates a relatively high but stable government and household debt burden. Malaysia is also exposed to a potential sharp and lasting negative change in external financing conditions, given the country's reliance on foreign financing. Nevertheless, its resilient economic growth, deep domestic capital markets, large international asset position and large export proceeds mitigate the sovereign's vulnerability to sudden shocks.
Moody's analysis is contained in its recently released report titled "Government of Malaysia: FAQ on credit resilience to high leverage and external vulnerability risks".
Moody's report answers the five questions below:
1) Do you expect fiscal trends to improve?
2) Do government guarantees present material contingent liability risks?
3) Is Malaysia vulnerable to external conditions?
4) Are strong growth trends likely to be sustained?
5) Does household debt present challenges to macro-financial stability and growth?
On fiscal trends, Moody's does not expect Malaysia's fiscal trends to improve significantly. The agency explains that fiscal consolidation has slowed since 2014 and absent any meaningful revenue-raising measures, further material progress is unlikely.
The deficit will narrow from 2.8% of GDP in 2018, as and when strong nominal GDP growth boosts revenues. As a result, the debt burden will likely stabilize around the current levels (50.9% of GDP in June 2017), significantly higher than the A-rated peer median of 40.5% at year-end 2016. Debt affordability will remain constrained by a narrow revenue base.
With government guarantees, Moody's says that such guarantees are unlikely to present material contingent liability risk, because they are issued through a stringent selection process and most companies that benefit from them are profitable and competently managed. At the end of 2016, the total debt of non-financial public sector corporations stood at 16.6% of GDP, two-thirds of which was guaranteed by the government.
Moody's points out that Malaysia's reserves are insufficient to meet maturing external long-term debt repayments and short-term debt. Nonetheless, a sizeable net asset position, large export proceeds, and deep domestic capital markets moderate external vulnerability.
Moody's also says that Malaysia will be able to maintain its strong growth trends. In particular, the country's highly diversified and competitive economic structure underpin stable and relatively robust growth trends that have proven to be resilient to external headwinds. The economy's long-term potential growth should stay robust at around 5.0%, which would be significantly stronger than most other A-rated sovereigns.
On the issue of whether household debt presents challenges to Malaysia's macro-financial stability and growth, Moody's says that at 84.6% of GDP at the end of September 2017, Malaysia's household debt levels — while stable — pose downside risks to growth. Nevertheless, such debt does not pose material threats to financial stability. Households have large liquid financial assets to buffer the impact of a potential shock to debt servicing capacity. Moreover, ongoing macroprudential measures will help contain potential further increases in debt.
Subscribers can access the report at:
NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Anushka Shah
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Atsi Sheth
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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