Finance Ministry: Solid fundamentals and reform prompts Moody’s A3 rating

Syed Jaymal Zahiid
Finance Minister Lim Guan Eng said solid economic fundamentals and the commitment to institutional reforms have convinced Moody to retain the country’s A3 sovereign credit rating with a stable outlook. — Picture by Shafwan Zaidon

KUALA LUMPUR, Jan 22 — Solid economic fundamentals and the commitment to institutional reforms have convinced Moody to retain the country’s A3 sovereign credit rating with a stable outlook, Finance Minister Lim Guan Eng said today.

The international rating agency in its January 16 annual credit analysis report said Malaysia’s competitive economy, strong medium-term growth prospects and effective institutions were among the reasons that prompted the strong rating.

“This compares favourably against some countries that have had its sovereign credit rating downgraded recently,” Lim said in a statement.

Malaysia’s economic strength scored well against the median of its A-rated peers, especially in terms of average GDP growth.

Moody’s GDP forecast for Malaysia was slightly lower than the World Bank’s forecast of 4.6 per cent, around the 2014-18 range, averaging 4.5 per cent over the next two years due to weaker global growth.

Still, the rating agency said its forecast for Malaysia remains higher than its peers.

Putrajaya has repeatedly given assurance that the country’s “fundamentals” and diversified economy will help the country weather external shocks.

Lim said the Malaysian economy has remained competitive and diverse to make it resilient against global uncertainty caused by the China-US trade war.

“Coupled with solid institutions as measured by the World Bank through the Worldwide Governance Indicators (WGI), these factors provide a firm foundation for the country’s long-term economic prospects,” he said.

The latest set of economic data suggests the economy will be expanding faster in the coming months, the minister added.

December 2019’s manufacturing Purchasing Managers’ Index was at a 15-month high, which Lim said pointed towards a healthy domestic manufacturing expansion in the near future.

The minister then pointed to the RAM Business Confidence Index, which for the first half of 2020 remained solid, with sentiment among small and medium enterprises (SMEs) is at its highest level of 54.2 points since the index first began in 2017.

“Additionally, the Leading Economic Indicator for October 2019 published by the Department of Statistics Malaysia has increased by 1.4 per cent to 120.3 points, which implies stronger economic growth in the coming quarters,” he said.

Putrajaya has maintained a strong growth outlook for this year, forecasting GDP to average at a high 4.8 per cent although other forecasts have been less optimistic.

The Institute of Chartered Accountants in England and Wales (ICAEW), for example, said Malaysia’s GDP is likely to be around just 4 per cent owing to slow domestic consumer spending.

But Putrajaya expects Malaysia’s economic outlook would brighten further with the lessening of trade tensions between China and the United States.

Lim said Malaysia’s trade openness meant it would benefit from the slightest improvement in global trade volume.

“Malaysia is an open economy that is highly integrated with the global supply chain. Any improvement in global trade volume will increase demand for Malaysian exports, and directly boost Malaysian GDP growth,” he said.

Other key indicators have also suggested upward trends.

Industrial production rose 2 per cent year-on-year in November 2019 versus 0.3 per cent growth in October, while sales value for distributive trade grew at 5.3 per cent in November 2019 versus 5.0 per cent in the previous month.

Unemployment rate has also remained low at 3.2 per cent as of November 2019.

Inflation also remained low and stable at 1.0 per cent for December 2019.

Overall 2019 inflation stood at only 0.7 per cent, among the lowest in the region, which Lim attributed to the rolling back of the Goods and Services Tax and the cap imposed on RON95 petrol price.

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