Malaysia’s Political Instability and Policy Gridlock Still a Reality

Moody’s affirmed Malaysia’s A3 rating and stable outlook on April 14, 2023 but it says political instability and policy gridlock, which hamper its prospects for revenue reforms and longer-term competitiveness.

This means the political class must grow up and show some maturity in cooperating with the current powers to help solve the many problems the country is still facing.

It also means that Moody’s believes that Malaysia’s credit profile is consistent with the A3 rating level and that there are no significant risks that could lead to a rating change in the near future.

But forget the ratings, the real danger is the infighting among the political class.

Diversification and Competitiveness

Nevertheless, Moody’s cited several factors that support Malaysia’s A3 rating and stable outlook, such as:

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• Malaysia’s economic diversification and competitiveness, which enable it to withstand external shocks and benefit from global trade opportunities.
• Malaysia’s access to robust sources of domestic financing, which reduce its reliance on foreign capital and enhance its debt sustainability.
• Malaysia’s key economic policymaking institutions, which maintain their credibility and independence despite political uncertainties and social pressures.
• Moody’s is a credit rating agency that assesses the creditworthiness of governments and other entities. A credit rating reflects the ability and willingness of a borrower to repay its debt obligations. A higher rating means a lower risk of default and a lower cost of borrowing.
• Moody’s assigns ratings on a scale from Aaa to C, with Aaa being the highest and C being the lowest. Ratings from Aaa to Baa are considered investment grade, while ratings from Ba to C are considered speculative grade. Each rating category is further divided into three subcategories, denoted by 1, 2 or 3, with 1 being the highest and 3 being the lowest. For example, A3 is the lowest subcategory within the A rating category.

The Eternal Political Squabbles

Moody’s also identified some challenges and risks that could affect Malaysia’s credit profile in the future, such as:

• Malaysia’s increased debt burden and weakened debt affordability, which limit its fiscal space and increase its vulnerability to interest rate shocks.
• Malaysia’s lack of material revenue diversification, which constrains its fiscal flexibility and exposes it to commodity price volatility.
• Malaysia’s political instability and policy gridlock, which hamper its prospects for revenue reforms and longer-term competitiveness.

“The Government welcomes Moody’s Investors Service (Moody’s) affirmation of Malaysia’s sovereign credit ratings at A3 with “Stable” outlook. The affirmation reflects the country’s determination to sustain economic growth momentum and resilience amidst highly challenging global conditions and uncertainties.” – Press Release by the Ministry of Finance.

“The government remains committed to driving inclusive and sustainable growth, restoring confidence in public institutions and governance as well as safeguarding social justice for all Malaysians.

Malaysia Madani

In line with the Malaysia Madani vision, Putrajaya will strive towards strengthening economic growth and promoting increased investments while focusing on initiatives to control inflationary pressures and mitigate the rakyat’s burden on the cost of living.” – Statement by the Ministry of Finance².

“The affirmation of this rating reflects the country’s determination to maintain the momentum of economic growth and resilience despite facing a challenging and uncertain global environment.” – Statement by the Ministry of Finance³.

Moody’s is a credit rating agency that assesses the creditworthiness of governments and other entities. A credit rating reflects the ability and willingness of a borrower to repay its debt obligations.

A higher rating means a lower risk of default and a lower cost of borrowing. – Moody’s assigns ratings on a scale from Aaa to C, with Aaa being the highest and C being the lowest.

Ratings from Aaa to Baa are considered investment grade, while ratings from Ba to C are considered speculative grade.

Each rating category is further divided into three subcategories, denoted by 1, 2 or 3, with 1 being the highest and 3 being the lowest. For example, A3 is the lowest subcategory within the A rating category.