Fitch forecasts the current account to slightly narrow to 2.6% in 2023 from 3% in 2022. However, it pointed out that Malaysia is well-positioned to benefit from the global supply chain diversification due to its competitive manufacturing sector and significant FDI inflows since the re-opening of the economy in 2022.
KUALA LUMPUR (Dec 5): Fitch Ratings has affirmed Malaysia's long-term foreign-currency issuer default rating (IDR) at BBB+ with a stable outlook.
In a statement on Tuesday, the ratings agency said Malaysia's ratings "balance a diversified economy with strong medium-term growth prospects against high public debt, a low revenue base relative to operating expenditure, and political considerations that may hinder long-term policymaking and reform implementation".
Fitch expects Malaysia’s real gross domestic product (GDP) growth to moderate to 4% in 2023 before improving slightly to 4.2% in 2024, amid improving political stability in the country.
Fitch also anticipates weak global demand and trade restrictions to undermine the country’s exports. However, this is expected to be cushioned by resilient domestic demand, supported by growth in wages and investment activities.
The rating agency commended the country’s current account position, which continues to record surpluses for more than two decades and expects the current account to remain in surplus in the medium term, notwithstanding external challenges.
Overall, Fitch forecasts the current account to slightly narrow to 2.6% in 2023 from 3% in 2022. However, it pointed out that Malaysia is well-positioned to benefit from the global supply chain diversification due to its competitive manufacturing sector and significant foreign direct investment (FDI) inflows since the re-opening of the economy in 2022.
The rating agency also projected that the Federal Government deficit will decline to 3.5% in 2025 amid subsidy rationalisation and the roll-out of the Global Minimum Tax.
In a separate statement, the Ministry of Finance said it welcomed the affirmation, adding that it reflects "the government’s commitment to fiscal reform and the country’s ability to maintain economic growth momentum and withstand weak and volatile global conditions".
MOF in its statement said the government is committed to pursuing fiscal consolidation and rebuilding the fiscal buffer for long-term sustainability.
“In the medium term, the government is committed to reducing the fiscal deficit from 5.6% in 2022 to 5% of GDP in 2023 as estimated, and subsequently to 4.3% in 2024.
“At the same time, Budget 2024 maintains an expansionary fiscal stance with budgeted Development Expenditure of RM90 billion to support the momentum of domestic economic growth and meet the needs of the rakyat. Under the Ekonomi Madani framework, the pace of fiscal consolidation will be further accelerated to achieve the medium-term deficit target of 3% and fiscal reforms continues to be a priority to the government,” the ministry said.
It added that this is reflected in the recently-approved Public Finance and Fiscal Responsibility Bill (FRA) passed by Parliament last month. The FRA will institutionalise accountability and transparency in public finance for long-term fiscal sustainability and macroeconomic stability.
Moving forward, MOF said the government is confident that the initiatives outlined in the Madani Economy framework and the rolling out of the measures under the various national plans, namely the National Energy Transition Roadmap, New Industrial Master Plan 2030 and the Mid-Term Review of the 12th Malaysia Plan will galvanise growth further.