Thursday 28 Mar 2024
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KUALA LUMPUR (July 29): Malaysia Rating Corp Bhd (MARC) has assigned a local currency sovereign rating of AAA with a stable outlook on Malaysia despite persistent economic and macro-financial challenges amid the ongoing pandemic.

Under this rating scale, the sovereign state of Malaysia carries the lowest relative risk for reasons that include its authority to tax in ringgit and set interest rates.

In a statement, MARC said the rating reflects several credit strengths, including a competitive and well-diversified economy with a relatively resilient and stable growth track record.

As such, Malaysia comes in at number 27 out of 63 economies in the 2020 edition of the Institute for Management Development (IMD) World Competitiveness Rankings in terms of international competitiveness.

“The World Bank’s Ease of Doing Business 2020 report moved Malaysia up three places to a global rank of 12th out of 190 economies. In 2019, the World Trade Organisation (WTO) ranked Malaysia at number 26 in both exports and imports of global merchandise trade, enabling the country to enjoy a persistent current account surplus and, consequently, a healthy external position.

“Together with credible monetary management, these positive developments have managed to keep to a minimum any spillover from episodic financial market volatility into the real economy,” the rating agency said.

It noted key credit challenges including the ongoing pandemic, which has increased economic and macro-financial risks.

While MARC expects the government to remain committed to fiscal consolidation, it anticipated plans to be put on hold for fiscal policy to adapt to the new reality.

It said substantial support measures had become necessary to avoid further economic damage and help safeguard the capacity to recover after the pandemic recedes.

MARC also expected sustained pressure on the balance sheet of corporates and households, especially given the demonstrated ease of Covid-19 resurgences, while cautioning that risks existed on the external front amid the ongoing pandemic and slower-than-anticipated rollouts of vaccines.

“The stable outlook reflects our expectation that the government will maintain broad economic policy continuity and remain proactive and practical in its economic, fiscal, and monetary management efforts.

“It also reflects our expectation that Malaysia’s external position will continue to be healthy even in the face of persistent buffeting headwinds, at least over the medium term,” it said.

Going forward positive evidence of an effective fiscal and monetary policy mix to support and repair the economy will gradually improve Malaysia’s credit profile.

However, the credit profile will deteriorate if: a) the policy mix proves ineffective or is deemed imprudent; and b) Covid-19 resurgences further elevate already high economic and macro-financial risks.

Edited ByLam Jian Wyn
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