S&P Global Ratings Affirmed Malaysia’s Sovereign Credit Ratings
S&P Global Ratings (S&P) has affirmed Malaysia’s foreign currency and local currency long-term issuer ratings at A- and A, respectively, with a negative outlook. The affirmation is testament to the country’s strong external position, monetary policy flexibility, recognised track record of supporting sustainable economic growth as well as economic resilience during times of uncertainty. It demonstrates S&P’s confidence in Malaysia amidst unprecedented credit rating pressures globally, where approximately 20% of all sovereigns with negative outlooks as at end of 2020 have been downgraded by the three main Credit Rating Agencies thus far.
Almost 18 months into the COVID-19 pandemic, global growth prospects remain highly uncertain. New COVID-19 variants have led to a resurgence of cases and the re-imposition of containment measures, as well as the postponed reopening of economic and social sectors by governments all over the world. The Asian region, particularly, has faced multiple challenges such as elevated caseloads and higher death tolls, exacerbated by vaccine inequity, where access to vaccines is dominated by advanced economies. As such, growth recovery is expected to diverge across countries and sectors, reflecting variations in pandemic-related challenges as well as the extent of fiscal support.
Dalam menangani cabaran ini, Malaysia telah mengumumkan Pelan Pemulihan Nasional (PPN) yang merangkumi empat fasa bagi membolehkan negara bebas daripada kemelut pandemik COVID-19. Peralihan fasa PPN adalah berpandukan kepada purata kes harian baharu, tahap penggunaan katil Unit Rawatan Rapi (ICU) dan peratus populasi yang divaksinasi sepenuhnya. PPN membolehkan rakyat, perniagaan dan pelabur membuat perancangan sewajarnya apabila Malaysia beralih dari satu fasa ke fasa seterusnya. Pelan ini memberi kepastian dan kejelasan khususnya kepada sektor ekonomi dan sosial yang akan dibenarkan beroperasi semula apabila nilai ambang tertentu dicapai. S&P telah menyatakan bahawa sejak pelaksanaan fasa pertama pada 1 Jun 2021, penularan kes semakin terkawal dalam tempoh dua minggu kebelakangan ini, dan ekonomi Malaysia berkemungkinan besar pulih secara beransur-ansur pada separuh kedua tahun 2021, hasil daripada strategi Kerajaan untuk membuka semula sektor ekonomi secara beransur-ansur. Sehingga kini, Malaysia berjaya mengurangkan purata kes harian baharu daripada 8,000 hingga sekitar 5,000 kes sehari dan mengekalkan nisbah kes kematian kurang dari 0.6% serta kadar penyembuhan lebih daripada 85%
In addressing such challenges, Malaysia has announced the National Recovery Plan (NRP) comprising four phases that will enable the country to exit the COVID-19 pandemic. Guided by thresholds based on the average daily COVID-19 new cases, utilisation rate of Intensive Care Unit (ICU) beds and the percentage of population fully vaccinated, the NRP will enable the people, businesses and investors to plan accordingly as Malaysia moves from one phase to the next. This provides certainty and clarity especially in terms of reopening economic and social sectors once the thresholds are met. Notably, S&P has highlighted that since the implementation of the first phase on 1 June 2021, cases have stabilised over the two weeks prior, and Malaysia’s economic recovery will likely be gradual in the second half of the year, based on the Government’s cautious reopening approach. So far, Malaysia has managed to reduce the average daily cases from a high of 8,000 to around 5,000 per day, while maintaining a case-fatality ratio of less than 0.6%, and supported by a recovery rate of more than 85%.
In reinforcing growth prospects, the Government has implemented stimulus and assistance packages valued at RM380 billion since the onset of the pandemic, and an annual Budget worth RM322.5 billion for 2021. Of the measures under Budget 2021 and those packages, at least RM300 billion are still ongoing, and are expected to support economic recovery, particularly throughout the different phases of the NRP. So far, close monitoring by the Ministry of Finance’s National Economic Implementation and Strategic Coordination Agency (LAKSANA) indicates that RM200 billion has been disbursed from economic stimulus and assistance packages, benefitting more than 20 million people and 2.4 million businesses since March 2020. Over the medium term, the Government remains steadfast in pursuing the ongoing structural reforms to enhance the economy’s growth potential. This includes the implementation of the National Investment Aspirations to attract higher quality investments that will generate higher-skilled and better paying jobs.
Despite higher downside risk to growth due to recent containment measures, the marginal impact to the economy is expected to decrease as Malaysia moves through each phase of the NRP, particularly as more economic and social sectors reopen, and various sectors have adapted well to operating remotely by embracing digital technology. As such, the overall impact to the economy is expected to be less severe compared to the Movement Control Order (MCO) 1.0 implemented in March 2020.
Moving forward, Malaysia’s economy is expected to gradually recover as the National COVID-19 Immunisation Programme gains pace, and the NRP thresholds are met for a broader reopening of economic and social activities. So far Malaysia has administered an average of 160,000 doses per day, which is expected to increase to 400,000 doses per day in August 2021. At this rate, 60% of the population are expected to be fully inoculated by end-October this year.
Other factors that will drive Malaysia’s economic recovery include improving external demand from major trading partners, along with a diversified economy and implementation of infrastructure projects with high multiplier impact. Notably, S&P has acknowledged that Malaysia’s mature electrical and electronics (E&E) manufacturing sector is well-positioned to benefit from a global surge in demand and the global tech upcycle, supporting exports for the next one to two years. The Government’s policy in encouraging digitalisation and technological adoption is also set to boost Malaysia’s longerterm economic prospects and resilience. Additionally, the Twelfth Malaysian Plan (2021 – 2025) will provide a blueprint for sustainable growth, aimed at strengthening socio-economic inclusivity, and environmental sustainability.
The Government remains committed to the country’s medium-term fiscal consolidation and sustainability. Over the past decade, the fiscal deficit was successfully reduced from 6.7% (2009) to 3.4% (2019) of GDP. Guided by the Medium-Term Fiscal Framework, the estimated fiscal deficit of 6% this year is expected to decrease to an average of 4.5% between 2021 and 2023, based on the assumption of higher crude oil prices, as well as the reduced requirement for pandemic-related fiscal support. This will also be supported by the gradual implementation of the Medium-Term Revenue Strategy which aims to enhance and diversify the country’s revenue base. To this end, Malaysia is also formulating the Fiscal Responsibility Act to improve fiscal prudence, governance and transparency based on global best practices.
Solidifying Malaysia's rating strength is its strong credit standing, supported by a resilient external position and well-developed domestic bond market. Malaysia has consistently registered a current account surplus over the past two decades with its largest ever trade surplus of RM184.8 billion in 2020, equivalent to 4.2% of GDP. This is further supported by adequate international reserves, large external assets held by banks and corporates, as well as net foreign currency external asset position of RM1.1 trillion or 77.0% of GDP as at end-March 2021. Together with a floating foreign-exchange regime, these factors underpin Malaysia’s ability to withstand external shocks. Reinforcing Malaysia’s external resilience is its highly liquid and deep domestic bond market, with healthy external demand for its sovereign debt. Moreover, Malaysia’s retention in the FTSE Russell’s World Government Bond Index is testimony to its well-developed capital market, as well as strong macroeconomic fundamentals and resilience.
Overall, the Government's current priority is to protect lives from the threat of COVID-19 and ensure the country’s economic growth prospects remain strong in the medium to longer term, guided by the NRP and the principles of prudent financial management. Enhanced efforts towards fiscal consolidation measures will be implemented in phases in the medium to longer-term, when the economy shows further signs of recovery. This will balance short-term fiscal requirements with long-term fiscal and economic sustainability. The Government will continue to respond strategically, proactively and decisively under this challenging COVID-19 environment, while also ensuring that permanent economic scarring from the pandemic is minimised.
YB Tengku Dato’ Sri Utama Zafrul Tengku Abdul Aziz
Minister of Finance
22 June 2021