The ratings agency said the decision reflected its expectation that Malaysia faces heightened risks of further deterioration in its fiscal settings due to the Covid-19 pandemic over the next 24 months.
It said the weak global economic climate, heightened policy uncertainty, depressed oil prices and fiscal stimulus will weaken the government’s debt position over the next few years.
Tengku Zafrul said there has been an urgent need to ensure substantial stimulus measures and economic recovery plans are implemented expeditiously to protect the rakyat, support businesses and strengthen the economy.
He pointed out that Covid-19 has impacted the sovereign ratings of many countries, reflecting the significant challenges in the global economy like weaker growth prospects, larger fiscal deficits and higher debt levels.
Countries with open economies like Malaysia, he said, have responded with substantial macroeconomic and fiscal measures to reduce the adverse health and economic impact of the pandemic which, in turn, has led to lower sovereign ratings.
He said that while the outlook revision by S&P has been lowered, the government believed its proactive response to Covid-19 through initiatives and measures under the RM295 billion stimulus and recovery packages helped save more than 2.4 million jobs and support 800,000 businesses and micro SMEs.
These included the Prihatin, Prihatin SME Plus and Penjana economic stimulus packages.
Collectively, these packages are expected to contribute more than 3% to Malaysia’s GDP growth in 2020 and will not have a permanent impact on government finances in the medium term.
This, he said, is supported by the optimistic outlook on the economy in S&P’s report which projects Malaysia’s strong GDP growth recovery of 7.5% in 2021.
Tengku Zafrul said the banking system’s capital buffer, at RM121 billion, is more than three times the level during the global financial crisis.
He said that ample liquidity, coupled with sound asset quality and a robust risk management framework, will continue to support lending activities and the overall economy.
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