Fitch Ratings affirms Malaysia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A-' with a Stable Outlook.
In a statement, Fitch said Malaysia’s ‘A-‘ rating (when compared to the median of its ‘A’ category peers) was driven by the country’s sturdy GDP growth, constant current account surpluses and net external creditor position (driven by large private external assets).
These strengths are balanced by weaker structural factors such as low per capita GDP and governance indicators, high government debt and large contingent liabilities. The international rating agency views the large contingent liabilities as a risk to public finances.
The country has portrayed robust economic growth in the last two years, amid challenges such as the lower oil prices and volatile capital flows. Based on the paced growth momentum, Fitch has raised its forecast on Malaysia’s full-year GDP growth to 5.1%, from its previous forecast of 4.5%. Fitch also estimates the average five-year real GDP growth of Malaysia at 5%, above the median of 2.9% of its category peers.
“We forecast inflation of 3.5% in 2017 as the base effect from low commodity prices eases,” said Fitch in the statement.
The international rating agency also predicts that the high household debt risks for the banking sector will be countered by the country’s reasonably strong employment and income growth.
Malaysia’s rating shows that the country has prominent capacity to meet its financial commitments, but is vulnerable to the adverse effects of changing economic conditions.