Moody’s lowers Malaysia’s credit rating outlook, cites weaker finances

KUALA LUMPUR, Jan 11 — Ratings agency Moody’s has downgraded Malaysia’s sovereign credit rating outlook from positive to stable at A3, citing external financial pressures that has weakened the government’s revenue.

The international investment service agency noted Malaysia’s public debt burden had improved a little since its credit rating was revised upwards last November, but believed any further improvement is now limited.

“Those environmental changes have also undermined Malaysia’s external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves.

“And alongside rising external exposure, material domestic imbalances continue to pose a risk to growth and the financial system. Household debt levels remain high by the standards of Malaysia’s peers,” Christian de Guzman, Moody’s vice-president said in his report on Malaysia’s sovereign risk released today.

He explained that Malaysia’s lower foreign trade has also weakened its position on external payments, prompting the downwards credit outlook rating.

He noted that Malaysia’s current account surplus has dropped from an average 11.0 per cent over the last decade to a projected 2.1 per cent of its GDP last year, providing a slimmer buffer against capital outflows.

Additionally, Malaysia’s foreign exchange reserves have also fallen by more than US$20 billion since end 2014 while the ringgit has weakened by more than 20 per cent against the greenback, de Guzman said in his report.

He said the Malaysian government is like to keep to already lowered external buffers and “tolerate greater currency depreciation”.

While Malaysia managed to strengthen its fiscal position for the sixth year straight in 2015, better than other countries rated A, it has not translated to any significant improvement in its government debt ratio, de Guzman said.

“Consequently, the government’s debt burden has stabilized below its self-imposed debt ceiling of 55per cent of GDP, but has not entered into a sustained downward trend,” he said.

He said this is due to the pressures of the global market crude oil price putting a pressure on oil-producing Malaysia’s revenue.

As such, Moody’s expects government receipts to drop to its lowest GDP level since 2000, this year.

“As a result, debt affordability has continued to worsen with the interest payments-to-revenue ratio remaining at levels more than twice as high as the A-rated median,” de Guzman said.