PETALING JAYA: Moody’s Investors Service says the government of Malaysia’s (A3 stable) credit profile reflects the country’s large and diversified economy with healthy medium-term growth prospects.

It said the relatively high government debt was partly offset by a favourable debt structure and large domestic savings.

“Malaysia’s real GDP growth should slow to 4.7% in 2019 and 4.5% in 2020, after averaging around 5% during 2015-18,” it said in its recently released credit analysis titled “Government of Malaysia – A3 stable: Annual credit analysis.”

However, it said external headwinds from trade protectionism will weigh on trade activity, while a review of infrastructure projects and slowing public spending will prove a further drag on growth.

“Nevertheless, economic expansion will still stay stronger than the median average for A-rated sovereigns, even taking moderating growth into account,” it said.

The analysis examines Malaysia’s credit profile in terms of economic strength, which is assessed as “very high (-)”; institutional strength at “high (+)”; fiscal strength at “moderate”; and susceptibility to event risk at “moderate (-)” , which are the four main analytic factors in Moody’s sovereign bond rating methodology.

The report constitutes an annual update to investors and is not a rating action.

Moody’s said the Malaysian government’s recent fiscal policy choices, in particular, abolishing the goods and service tax, will narrow its revenue base and reduce fiscal flexibility.

Moreover, Malaysia’s debt burden, which is significantly higher than the A-rated median, will remain a credit constraint.

However, deep domestic capital markets and high savings provide a stable funding pool for the government’s debt, and partly offset these fiscal weaknesses.

“A solid institutional framework that includes effective monetary policy supports the country’s credit profile.

“However, pervasive corruption will likely remain a challenge for the government, undermining policy effectiveness,” it said.

Source: https://www.thestar.com.my/business/business-news/2019/01/09/moodys-malaysias-a3-credit-profile-reflects-diversified-economy/#bsvMEjWMclofWZtZ.99