PETALING JAYA, Dec 8 — The Finance Ministry welcomes Moody’s recent A3 rating for Malaysia’s domestic and foreign debt as a boost for the country although the firm has pointed out that pervasive corruption could undermine the government.
Finance Minister Lim Guan Eng said Malaysia’s economic outlook remains stable in Moody’s assessment.
He added the affirmation of an unchanged rating was achieved despite recognising that Malaysia’s fiscal strength had weakened with a 3.7 per cent fiscal deficit to gross domestic product in 2018, 3.4 per cent in 2019, 3 per cent in 2020 and less than 2.8 per cent in 2021, caused by the corruption scandals related to the 1Malaysia Development Bhd (1MDB) of the previous Barisan Nasional (BN) government.
“The government recognises these economic challenges and will take steps to overcome them over a three-year time frame to put Malaysia back on track,” he said in a statement today.
“Moody’s confidence in Malaysia’s robust growth potential, deep domestic capital markets, a solid institutional framework, including strong monetary policy effectiveness, are strong credit positives.”
Lim said Moody’s added that in the longer term, Malaysia’s economic prospects are supported by well-developed infrastructure, substantial natural resources, globally competitive manufacturing and services sectors.
This, he said, is evidenced by the resurgent growth in exports in October 2018 to a historic high in a single month of RM96.4 billion and a record trade surplus of RM16.3 billion following the announcement by the Malaysian Investment Development Authority (MIDA) that approved Foreign Direct Investments (FDI) in the manufacturing sector increased by RM 35 billion, or 250 per cent, to RM49 billion for the first nine months of 2018, from RM14.0 billion in the same period last year.
“What is noteworthy is that for the months from May to September 2018, total approved FDI in the manufacturing sector was RM35 billion compared to RM7.3 billion from May to September 2017.
“This demonstrates that foreign investors’ confidence in Malaysia, is resurgent under the new leadership of Prime Minister Tun Dr Mahathir Mohamad, with a RM27.7 billion or 379 per cent hike in the said figures, after the peaceful transition of power that took place on 9 May 2018,” he said.
Lim said there was therefore every reason for Bloomberg to place Malaysia as No. 1 in its list of 20 emerging economies in the world on November 28, citing the country’s current-account surplus, relatively stable economic growth outlook and valuations.
The international ratings firm had said yesterday it expected the reform measures undertaken by the Pakatan Harapan (PH) government to yield slow results, predicting resistance overtime if the government fails to improve living standards.
This comes even as the country’s improved legal and regulatory framework had supported robust growth, macroeconomic stability and stable inflation, which Moody’s said denotes effective monetary policy.
“However, pervasive corruption has acted as a credit constraint, undermining government effectiveness,” the firm said in its report on Malaysia’s sovereign ratings.
“Moody’s expects these measures to materialise only slowly. Over time, they may face some resistance especially if the stated intentions of improved transparency and lower corruption are not accompanied by material improvements in living standards.”