S&P Global Ratings reaffirmed Malaysia’s A- rating with an outlook revision from stable to negative. The reaffirmation comes with the bullish projection by S&P that next year’s gross domestic product will grow by 7.5 percent. The 7.5 per cent is more positive than the projected growth of Malaysia’s economy next year by 6.9 per cent of the World Bank.
While reflecting on the new change by S&P, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the gloomy outlook was informed by the effect of the Covid-19 pandemic on Malaysia’s economic development and fiscal situation.
Tengku Zafrul said the government claimed that the right course of action was their current fiscal policy response. It is because there was an immediate need to undertake effective stabilization steps and expeditious execution of economic recovery strategies to defend the rakyat, help enterprises and improve the economy.
This is further backed by the positive economic forecast in the S&P survey forecasting Malaysia ‘s fast GDP growth rebound of 7.5% in 2021,” he said in today ‘s speech. Tengku Zafrul said the ongoing downturn also had an effect on the sovereign ratings of several nations, representing significant global economic problems such as lower development rates, larger fiscal deficits and higher debt levels.
It, in effect, has contributed to lower prospects for many economies on the sovereign ranking, both advanced and developing. He affirmed that although S&P ‘s review of outlook had been reduced, the positive response from the government to the crisis was both timely and necessary.
Initiatives and interventions under the stabilization and recovery packages of RM295 billion – Prihatin, Prihatin SME Plus and Penjana – seek to preserve life, help enterprises, save and build employment, and boost the economy. Collectively, the RM295 billion economic development programs for Prihatin and Penjana are projected to add more than 3.0 per cent to Malaysia’s GDP growth in 2020,” he added.
Tengku Zafrul claimed that most of the steps adopted were either one-off or reversible under the two sets. In the medium term, this would not have a permanent impact on public finances.
In fact, he said Malaysia had ample domestic sector room to collect additional funds. He said the government remained dedicated to its fiscal reform agenda in the medium and longer term, and would restart its fiscal consolidation drive once the global economy recovers.
Malaysia has a strong record of economic management. Malaysia’s fiscal deficit grew to 6.7 per cent of GDP in 2009 despite the global financial crisis of 2008/09. The government has subsequently effectively raising the fiscal deficit in 2019 to 3.4 % of GDP. Moving ahead, the government is dedicated to consolidating the fiscal deficit to below 4.0 per cent of GDP in the medium term.
Meanwhile, Tengku Zafrul said Malaysia has remained resilient in its external position. This is backed by a current account surplus, an sufficient amount of foreign reserves, and substantial external assets retained by banks and companies and the Malaysian financial sector entering from a place of strength into the difficult sequence. The capital reserve of the banking sector, at RM121 billion, is more than three-fold the amount before the global financial crisis.