Bangkok--17 Jun--Moody's Investors
Moody's Investors Service says in its latest annual sovereign report that Malaysia's A3 sovereign credit rating has been underpinned through the global crisis by its strong external position, deep and liquid domestic capital markets, and a well managed financial system.
The sovereign credit outlook is stable, and is adequately supported by favorable expectations for economic performance and policy management, as well as the government's efforts to liberalize investment laws and foster competition so as to improve the country's growth model.
"Malaysia's strong liquidity and deep capital markets have ensured the 'finance-ability' of large fiscal deficits and 'affordability' of the higher level of government debt that was ratcheted up by policy responses to the external shocks of 2008-09," says Aninda Mitra, a Moody's Vice President and author of the report.
While Malaysia boasts a well-diversified and reasonably competitive and externally oriented economy, stabilization of the government's debt level in the medium term requires stronger economic and fiscal reforms than seen in the recent past, notes the report.
Consequently, the government's recent articulation of medium-term policy goals of enabling greater domestic competition, fostering a knowledge-driven economy, and achieving a higher income status -- as contained in the "New Economic Model" -- represent its strong intent to re-invigorate and re-balance the drivers of economic growth.
According to the report, however, a demonstrable commitment to specific medium-term strategies that may better underpin its relative sovereign credit fundamentals remains pending. In particular, the rationalization and better targeting of fuel subsidies and the implementation of goods and services taxes are both important.
Moreover, the abilities to heighten local competition and generate greater domestic private investment are crucial. Such measures could lift trend growth prospects as well as reduce the relatively large role of the public sector in capital formation, it says.
Against the backdrop of sound monetary management and sophisticated capital markets, sustainable improvements in Malaysia's growth fundamentals and the government's fiscal performance would provide upward rating pressure. On the other hand, the inability to retrench Federal Government finances could weaken its debt dynamics and undermine investor confidence, and result in downward credit pressure.
Entitled, "Credit Analysis: Malaysia", the report can be accessed at www.moodys.com.
The principal methodology that Moody's uses in rating the Government of Malaysia is 'Moody's Sovereign Bond Ratings Methodology,' published in September 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.