FITCH Ratings’ affirmation of Malaysia’s sovereign credit ratings at BBB+ with a stable outlook reflected the government’s commitment to fiscal reform and the country’s ability to maintain economic growth momentum to withstand weak and volatile global conditions, the Finance Ministry (MOF) said.
In a statement, the MOF said the government was committed to pursuing fiscal consolidation and rebuilding fiscal buffers for long-term sustainability.
“In the medium term, the government is committed to reducing the fiscal deficit from 5.6% in 2022 to 5% of gross domestic product (GDP) in 2023 as estimated, and subsequently to 4.3% in 2024.
“Budget 2024 maintains an expansionary fiscal stance with budgeted development expenditure of RM90 billion to support the momentum of domestic economic growth and meet the needs of the people,” it said.
Under the Madani Economy framework, the MOF said the pace of fiscal consolidation would be further accelerated to achieve the medium-term deficit target of 3%, and fiscal reforms continued to be a priority to the government.
“This is reflected in the Public Finance and Fiscal Responsibility Bill recently approved by parliament last month,” it said.
The ministry said the bill would institutionalise accountability and transparency in public finance for long-term fiscal sustainability and macroeconomic stability.
“Moving forward, the government is confident the initiatives outlined in the Madani Economy framework and the rollout of measures under various plans like the National Energy Transition Roadmap, New Industrial Master Plan 2030 and 12th Malaysia Plan mid-term review will further galvanise growth,” it said.
The MOF said Fitch stated Malaysia’s ratings balance a diversified economy with strong medium-term growth prospects against high public debt, a low revenue base relative to operating expenditure, and political considerations that may hinder long-term policymaking and reform implementation.
It said the credit rating agency expects Malaysia’s real GDP growth to moderate to 4% in 2023 and 4.2% in 2024, amid improving political stability in the country.
“Fitch also anticipated weak global demand and trade restrictions to undermine the country’s exports. However, this is expected to be cushioned by resilient domestic demand, supported by growth in wages and investment activities.
“Fitch commended the country’s current account position, which has recorded surpluses for more than two decades, and expects the current account to remain in surplus in the medium term, notwithstanding external challenges,” the MOF said.
Fitch forecasted Malaysia’s current account to narrow slightly to 2.6% in 2023 (2022: 3%), but it said the country was well positioned to benefit from global supply chain diversification due to the competitive manufacturing sector and significant foreign direct investment inflows since the reopening of the economy in 2022.
It also predicted the federal government’s deficit would decline to 3.5% in 2025 amid subsidy rationalisation and the rollout of the global minimum tax. – Bernama, December 5, 2023.