And while Moody’s expects big-ticket infrastructure projects such as the East Coast Rail Link and Kuala Lumpur-Singapore high speed rail to stimulate public and private investments, it warns in its annual credit analysis report of possible complications involving national debt.
“Malaysia faces the challenge of meaningfully lifting productivity growth to avoid falling into a middle-income trap. Although by some definitions, Malaysia is already classified as a high-income economy, absent improvements in productivity growth, growth potential will continue to slow,” Moody’s said.
According to a report in The Edge Financial Daily, Moody’s expects Malaysia’s gross domestic product (GDP) growth to be at 5.2% in 2018, mainly driven by infrastructure development activities.
The report said, however, that lower trade volumes and expected slower government spending after the general election, which must be held by August, could dampen the economy.
Moody’s said further fiscal consolidation was likely to be very slow with the absence of any meaningful revenue-raising measures, adding: “The government had acknowledged that its goal of achieving a balanced budget by 2020 will not be met, instead pushing it forward by another two to three years. Achieving this goal will likely rest primarily on economic growth, rather than any structural budgetary measures.”
The Edge Financial Daily reported that Moody’s had affirmed Malaysia’s A3 rating with a “stable” outlook.
However, it noted that the downside risks of the current rating were a significant worsening in Malaysia’s debt dynamics, possibly arising from a renewed fall in commodity prices or the crystallisation of contingent liabilities.
Moody’s also warns of a deterioration in the balance of payments position or material capital flight which will put further pressure on reserves and a long-lasting negative shock to the economy, possibly amplified by high household debt levels.