The Ministry of Finance (MoF) announced that Fitch Ratings has affirmed the long-term foreign-currency Issuer Default Rating (IDR) of Malaysia at ‘A-’ but revised the outlook to negative from stable.
The ratings agency also projected a 5.8% growth for the local economy in 2021, said MoF.
This mirrored the responsiveness of the government in handling the global health crisis as well as the synchronised worldwide economic shock in a decisive, timely and comprehensive manner, reported New Straits Times.
The recently launched RM260 billion Prihatin economic stimulus package is anticipated to add 2.9 percentage points to Malaysia’s 2020 gross domestic product (GDP) growth for this year.
Finance Minister Tengku Datuk Seri Zafrul Aziz noted that the country entered the unprecedented period from a position of strength – with healthy financial system, adequate buffers, strong domestic institutional investors and robust policy frameworks.
“These factors and ongoing efforts to further strengthen Malaysia’s policy frameworks will continue to serve the Malaysian economy well during this challenging phase.”
He explained that the stimulus will place the country on a stronger footing to benefit from the expected global recovery next year.
“Malaysia continues to maintain a healthy external position with substantial external assets by banks and corporations, a current account surplus and adequate level of international reserves,” said Tengku Zafrul.
“Malaysia’s foreign currency external assets continue to exceed its foreign currency external liabilities.”
In fact, the country’s net foreign currency external asset position stood at RM924 billion as at end-2019, with 94.5% of external assets denominated in foreign currency compared to 41.4% of total external liabilities.
“Reinforcing Malaysia’s external resilience is our highly liquid and deep domestic government bond market and the presence of strong domestic institutional investors,” he said.
“This has enabled Malaysia to substantially reduce reliance on foreign currency financing. As a result, about 96% Malaysia’s Federal Government debt is issued in ringgit and therefore, not subject to currency mismatches.”
The decline in foreign holdings of government bonds from the 34% peak in 2016 to about 21.5% presently also helped to mitigate the impact on borrowing costs, said Tengku Zafrul.
According to him, Malaysian banks are now way more resilient compared to during previous crises, albeit Covid-19 posed some risks on financial stability.
“Notably, excess capital buffers of banks stand at RM121 billion, more than three times the buffer during the 2008/09 Global Financial Crisis. Net impairments remain low at only 1.0% of total banking system loans,” he said.
He noted that the banking industry’s 148% liquidity coverage ratio is well above the 100% minimum requirement.
“These buffers, along with sound and prudential risk management practices, place banks in a good position to support lending activities and the overall Malaysian economy,” he added.