Political uncertainty surrounding upcoming elections and the 1MDB scandal were not enough to shake S&P’s confidence in Malaysia, with the ratings agency maintaining the country’s position as the poorest nation to hold a rating of A- or above with all three major ratings agencies.
S&P on Thursday reaffirmed the Malaysian government’s A-/A-2 foreign currency and A/A-1 local currency ratings with a stable outlook. That makes the country – which has an estimated GDP per capita of $9,200 – theoretically more creditworthy than Spain and Italy.
S&P said parliamentary elections – due to take place by next August at the latest – and long-running corruption allegations surrounding the country’s sovereign wealth fund both “pose potential challenges to the sovereign rating over the near-to-medium term”.
The elections in particular could slow the government’s plans to shore up its fiscal position and reduce energy subsidies, the ratings agency warned.
Still, S&P is confident that “these challenges will not materially impede policy flexibility and responsiveness”, and pointed to the “economy’s resilience” as a source of support for the government’s ratings.
The Malaysian economy expanded by 1.5 per cent in the first quarter, significantly ahead of forecasts.
The ratings agency said depreciation of the ringgit – it has weakened by 17.4 per cent since 2014 on a trade-weighted basis – has supported the competitiveness of the local manufacturing industry, while its deep domestic bond market helps to reduce the government’s reliance on foreign-currency financing.
Despite oil prices still languishing below $50 a barrel, S&P was also confident that “Malaysia’s credit fundamentals can withstand further stress in the oil and gas sector during that period”.