KUALA LUMPUR (Sept 29): S&P Global Ratings maintained Malaysia’s sovereign rating at A- with a stable outlook on expectations of steady fiscal performance over the next two to three years.

Malaysia’s consistently strong economic growth and high degree of monetary policy flexibility underpin the sovereign ratings, the rating agency said in a statement, noting that the country’s external position is supported by moderate current account surpluses and a large export base.

“We expect the Malaysian government to gradually reduce its fiscal deficit over the next few years, supported by the transition to targeted subsidy schemes and ongoing revenue measures,” S&P said.

Moody’s affirmed Malaysia at A3 in July, while Fitch held it at BBB+ in its December 2025 review. Both have a stable outlook, and all three ratings, including S&P’s, are investment grade.

Malaysia’s long-running fiscal deficits and ballooning government borrowings have been sore points for ratings agencies. On its part, the government has had some successes at trimming spending and raising tax collection to plug the budget gap.

Malaysia plans to shrink its fiscal deficit as a percentage of economic output to 3.5% this year from 3.8% in 2025, though there is risk that the government will miss its own target due to the ongoing geopolitical conflict in the Middle East.

S&P, meanwhile, expects Malaysia’s fiscal deficit to narrow to 3.1% this year.

The subsidy bill could shoot up again this year given the ongoing global oil shock, the agency flagged, noting that expenditure has already increased to 18% of the operating budget in the first quarter of 2026.

“For fiscal consolidation to be faster, the government will likely try to raise more revenue or reduce subsidies, or both” though the goods and service tax regime “looks unlikely to be brought back,” the agency said.