KUALA LUMPUR (Dec 24): Malaysian Rating Corporation Bhd (MARC) on Tuesday affirmed Malaysia's public information sovereign rating at AAA with a "stable" outlook.

However, MARC flagged challenges from a high fiscal deficit and debt levels, as well as the tax revenue-to-gross domestic product (GDP) ratio of 12.6% in 2023, which remains below the peer average despite recovering to pre-pandemic levels.

"Public debt is projected to remain around 64% of GDP in 2024, higher than the peer median of 55%," the rating agency said in a statement, noting that the government is managing fiscal pressures, and the fiscal deficit is expected to improve in the next few years.

On the AAA rating, MARC said it reflects the country’s credit strengths, including an open and increasingly diversified economy, steady economic growth, effective monetary policies, and a resilient financial sector.

The agency said Malaysia's GDP growth in 2024 is above trend and expected to continue in 2025, supported by foreign investment and consumer spending.

The country’s external financial position, it said, remains strong, backed by consistent current account surpluses, ample reserves, and low foreign-currency debt.

"Malaysia’s financial sector has also demonstrated resilience, with gross impaired loans remaining low at 1.6% of total loans in the first half of 2024, while the total capital ratio of 18.5% is well above the Basel III minimum requirement of 10.5%," the rating agency said.

On the "stable" outlook, MARC noted that it reflects expectations that Malaysia’s economy will continue to sustain healthy GDP growth, enhance fiscal efficiency, and address structural challenges, including high subsidies, the low tax revenue-to-GDP ratio, and elevated government debt.

"The outlook hinges on continued political cohesion, with the success of fiscal and institutional reforms dependent on the evolving dynamics within the coalition government," it added.

MARC also noted that key priorities for strengthening Malaysia’s credit profile include improving fiscal efficiency and meeting economic targets, with failure to achieve these goals potentially weakening it.