S&P affirms Malaysia's 'A-/A-2' foreign currency, 'A/A-1' local currency ratings

S&P Global Ratings has affirmed its 'A-' long-term and 'A-2' short-term foreign currency sovereign credit ratings on Malaysia amid a strong external position and considerable monetary policy flexibility.

At the same time, it also affirmed the 'A' long-term and 'A-1' short-term local currency sovereign credit ratings on Malaysia.

In a statement here today, S&P said the outlook on the long-term rating remained stable.

It said the company also affirmed its 'axAAA/axA-1+' ASEAN regional scale rating on Malaysia.

"The sovereign credit ratings on Malaysia reflect a strong external position and considerable monetary policy flexibility. We weigh these strengths against Malaysia's moderate fiscal deficits and government debt burden," it said.

S&P said the ongoing political challenges in relation to the allegations of 1Malaysia Development Bhd will not impede current policy flexibility and responsiveness.

Malaysia's strong external position, a result of many years of substantial current account surpluses, underpinned the ratings, it said.

"We believe this position can withstand a further slowdown in the oil and gas sector over the next two years. Likewise, external indicators are likely to remain unchanged, given our assumption of continued healthy trade surpluses," it said.

It said the weakened ringgit should continue to support the competitiveness of Malaysia's manufactured goods, partially offsetting the impact of depressed energy prices.

Malaysia also has a high degree of monetary policy flexibility, it said.

The rating agency said the central bank, Bank Negara Malaysia, has an established track record in controlling inflation, indicating strong monetary flexibility that helped absorb major economic shocks.

"Malaysia also has a deep domestic bond market, compare to its peers', which reduces its reliance on external financing," it said.

S&P expected Tan Sri Dr Zeti Akhtar Aziz's successor, Datuk Muhammad Ibrahim, to uphold and maintain the central bank's independence.

It said Malaysia's efforts in fiscal consolidation were encouraging as the government has shown considerable commitment towards fiscal consolidation.

As for government debt, the rating agency projected net general government debt will peak at 51 per cent of gross domestic product in 2017, and expected it to modestly decline thereafter.

"Although high household debt levels pose some risks, we believe this is somewhat contained by a banking sector that is well-capitalised and has a good regulatory record," it said.

It said Malaysia's foreign reservers remained sufficient and the country's deep local capital markets provided another pillar of support.

S&P said it may raise the ratings if stronger economic growth and the government's fiscal efforts improved budgetary outcomes, and that in turn allowed the government to substantially lower its debt burden. -- Bernama