KUALA LUMPUR, March 18 — S&P Global Ratings (S&P) may revise Malaysia’s outlook to ‘stable’ from ’negative’ over the next 24 months if the economy grows considerably faster than what it had forecasted through stronger fiscal performance.
Sovereign and International Public Finance Ratings director Andrew Wood said the rating agency also expects the nation’s economy to see a stronger recovery, recording a 7.5 per cent growth this year after contracting 5.6 per cent in 2020 due to the Covid-19 pandemic.
“The (7.5 per cent) growth can be achieved but this hinges on the daily Covid-19 cases reported and how the government is working to contain the spread of the pandemic,” he said during the “S&P Global Ratings’ Talks on Sovereign Rating Trends in the Asia-Pacific Amid Vaccines Rollout” webinar today.
Wood noted that the S&P has forecasted Malaysia’s gross domestic product (GDP) to record a 5.2 per cent growth in 2022 and 4.6 per cent in 2023.
“This year, we might see lower fiscal deficit somewhere above 5.5 per cent of the GDP,” he said, adding that the rating agency is not expecting the country’s debt-to-GDP ratio to come down to below 60 per cent in the next three to four years.
“Our ratings could face downward pressure if economic growth suffers a deeper or more prolonged downturn than we currently expect, or if we see a weaker commitment to fiscal consolidation; either of which could result in a faster accumulation of net general government debt,” he said.
The downward rating pressure would also arise if Malaysia’s annual change in net general government debt surpasses 4 per cent on a sustained basis, or interest paid by the government exceeds 15 per cent of revenue, added Wood.
Political instability could also be a factor that leads to a downward rating if the situation deteriorates to a point that policymaking becomes materially less predictable, he noted.
Meanwhile, S&P said it expects most Asia-Pacific sovereign credit ratings to remain unchanged in the next one to two years despite continued pandemic pressure.
The average Asia-Pacific sovereign rating continues to lie between “BBB” and “BBB+”, it said, adding that the continued acceleration of real GDP growth in China has been a relief for the region.
“The growth of exports to China is the most immediate benefit of the country’s economic rebound.
“Just as important, however, is the demonstration that tough measures to contain the pandemic bring meaningful economic benefits,” it said on its website. — Bernama