Sunway University’s Yeah Kim Leng said the influential international credit rating agency also signalled the country’s stable growth and fiscal performance over the near term.
“It is noteworthy that the agency remains sanguine of the performance of the Malaysian economy this year which it expects to expand at 6.1% despite the gathering headwinds facing the global economy, particularly the two largest economies, US and China,” he told Bernama.
Bank Islam Malaysia Bhd chief economist Afzanizam Abdul Rashid said factors such as being a net energy exporter and a major producer of crude palm oil as well as the easing of pandemic restrictions would be the key drivers for growth.
“The way I see it, it is a vote of confidence from the rating agency for our government finances. This essentially will open the fiscal space as the government needs to ensure economic growth prospects remain intact.
“Laying out a roadmap for fiscal consolidation would also help to build credibility and confidence,” he said. “In a way, this could also help stabilise our ringgit.”
RHB group chief economist Sailesh K Jha said the S&P outlook upgrade implied that some fiscal reforms could be coming.
“In our view, the surprise S&P upgrade to Malaysia’s sovereign outlook to stable from negative and affirmation of its long-term foreign currency debt rating at A-, implies that fiscal reforms could be coming within the next 12 months.
“The near-term implications for financial markets are neutral since it remains to be seen what these fiscal reforms will be and the timing of implementation of these policies,” he said in a research note.
He said although it was too early to tell, the balance of risks was tilted towards the goods and services tax (GST) not being included in the initial announcement of Budget 2023 but could be announced in March 2023 with the implementation towards the latter part of 2023 or early 2024.
“The GST rates could be in the low single digits and could potentially be implemented in a tiered manner with luxury goods being one component and normal goods being another component.
“Alternatively, if GST reforms aren’t possible in the foreseeable future, corporate taxes could be raised as part of Budget 2023,” he said.
On Monday, S&P Global Ratings upgraded Malaysia’s sovereign rating outlook to stable from negative.
It also projected Malaysia’s economy to grow at 6.1% in 2022 and 5% in 2023 supported by strong exports, high commodity prices and domestic demand following the reopening of the economy.
The rating agency also affirmed the “A-” long-term and “A-2” short-term foreign currency sovereign credit ratings as well as Malaysia’s “A” long-term and “A-1” short-term local currency ratings.