The ratings agency also affirmed its “A” long-term and “A-1” short-term local currency ratings on Malaysia.
“The stable outlook reflects our expectations that Malaysia’s steady growth momentum and fiscal policy will allow modest improvements in fiscal performance over the next two to three years,” it said in a statement today.
As the Malaysian economy recovers from the pandemic-related slowdown, the rating firm believes its medium-term growth prospects are better than most of the other countries at similar income levels.
“Although Malaysia’s budget deficit remains high, we expect its growth dynamics to offset vulnerabilities associated with an elevated government debt stock and weak fiscal performance,” it said.
S&P Global Ratings said Malaysia’s 2022 growth momentum has continued into 2023 with its first-quarter gross domestic product (GDP) rising 5.6% year-on-year, underpinned by improvement in employment, recovery in tourism activity, and continued capital investments on both private and public fronts.
“Nevertheless, we expect full-year economic expansion to moderate to 4% as a weakened global growth environment takes hold,” it said.
The rating agency also said Malaysia’s 2023 budget remains expansionary to support growth momentum and alleviate inflationary pressures.
Hence, it forecast Malaysia’s net indebtedness to rise by 4.4% of GDP in 2023 versus a 5% increase in 2022 on moderately lower general and central government deficits, it said.
Meanwhile, it said Malaysia’s solid external position remains a rating strength. The country has had consistent current account surpluses for more than two decades.
“We forecast the current account surplus will stabilise around 3% of GDP over the next three years, driven by a gradual recovery in tourism and a continued strong demand for its manufacturing exports, which will support the country’s trade accounts,” it said.
In addition, although Malaysia’s consumer price index (CPI) rose in 2022 to 3.4% in line with higher global prices and supply-side constraints, it expects the CPI to come in at a modest 2.8% by year end due to the government’s subsidies on fuel and food staples, it said.