Fitch affirms Malaysia’s rating, GDP to grow 5.8pct in 2021

Fitch Ratings has affirmed Malaysia’s long-term foreign-currency Issuer Default Rating (IDR) at ‘A-’ with a revised outlook from stable to negative.

Fitch also had projected the local economy to grow 5.8 per cent in 2021, according to the Ministry of Finance (MoF).

The MoF said this reflected the government’s responsiveness in handling the global health crisis and synchronised worldwide economic shock in a timely, decisive and comprehensive manner.

The government recently launched RM260 billion economic stimulus package dubbed Prihatin.

It outlined three main thrusts: protect the people, support businesses and
strengthen the economy.

The stimulus is expected to add 2.9 percentage points to its 2020 gross domestic product (GDP) growth.

Finance Minister Tengku Datuk Seri Zafrul Aziz said Malaysia had entered the unprecedented period from a position of strength.

It has a healthy financial system, strong domestic institutional investors, adequate buffers and robust policy frameworks developed over the years.

“These factors and ongoing efforts to further strengthen Malaysia’s policy frameworks will continue to serve the Malaysian economy well during this challenging phase,” Tengku Zafrul said in a statement.

He said the stimulus would place Malaysia on a stronger footing to benefit from the projected global recovery next year.

The government, he said, had a positive track record of fiscal consolidation with the fiscal deficit declining by half from 6.7 per cent in 2009 to 3.4 per cent last year.

Tengku Zafrul said the government would continue to focus on governance and structural reforms to place the country on a firmer footing.

The medium-term fiscal strategy will be enumerated in the Fiscal Outlook and Federal Government Revenue Estimate Report that will be issued together with the 2021 Budget in October.

“Malaysia continues to maintain a healthy external position with substantial external assets by banks and corporations, a current account surplus and adequate level of international reserves.

“Malaysia’s foreign currency external assets continue to exceed its foreign currency external liabilities,” he added.

As at end-2019, Malaysia’s net foreign currency external asset position stood at a sizable RM924 billion.

A total of 94.5 per cent of external assets are denominated in foreign currency compared to 41.4 per cent of total external liabilities.

He said the flexible exchange rate would continue to serve as important buffers against potential external shocks.

“Reinforcing Malaysia’s external resilience is our highly liquid and deep domestic government bond market and the presence of strong domestic institutional investors.

“This has enabled Malaysia to substantially reduce reliance on foreign currency financing. As a result, about 96 per cent Malaysia’s Federal Government debt is issued in ringgit and therefore, not subject to currency mismatches,” he said.

He said the decline in foreign holdings of government bonds from a peak of 34 per cent in 2016 to around 21.5 per cent currently has also mitigated the impact on borrowing costs.

He said Malaysian banks were now much more resilient that during the previous crises, although Covid-19 posed some risks to financial stability.

“Notably, excess capital buffers of banks stand at RM121 billion, more than three times the buffer during the 2008/09 Global Financial Crisis. Net impairments remain low at only 1.0 per cent of total banking system loans,” he said.

The banking industry’s liquidity coverage ratio at 148 per cent, stands well above the minimum requirement of 100 per cent, he said.

“These buffers, along with sound and prudential risk management practices, place banks in a good position to support lending activities and the overall Malaysian economy.”

Source: NST