PETALING JAYA - Ratings agency Moody's Investors Service has upgraded Malaysia's sovereign credit outlook to "positive" from "stable", driven by improved prospects for fiscal consolidation and reform as well as continued macroeconomic stability in the face of external headwinds brought on by price stability and a credible central bank.
The government bond and issuer ratings have been affirmed at A3. The country's long-term foreign currency bond ceiling has also been affirmed at A1 and long-term foreign currency bank deposit ceiling at A3. In addition, the short-term foreign currency bond and bank deposit ceilings were affirmed at P-1. Moody's also affirmed the local currency country risk ceiling at A1.
In a related rating action, Moody's revised to "positive" the outlook for Khazanah Nasional Bhd, whose instrument ratings remain at A3.
In a separate announcement, the ratings agency said that the A1 issuer and senior unsecured ratings of Petroliam Nasional Bhd (Petronas) and the A3 issuer rating of Petronas LNG Ltd remained unchanged, while the A1 senior unsecured ratings of Petronas Global Sukuk Ltd and Petronas Capital Ltd also remained unchanged. The outlook on the ratings remained "stable".
Moody's senior analyst Christian de Guzman said in a statement that the "positive" outlook reflected the rating agency's expectation of Malaysia's continued economic outperformance, relative to peers, against challenges in executing the fiscal reform programme.
"Significant consolidation of the Government's fiscal deficits and the debt burden could trigger an upgrade (to the credit rating)," he said.
Factors that could lead to a change back to a "stable" outlook or even a negative rating action include a significant deterioration in the country's debt dynamics, possibly arising from an inability to successfully implement fiscal reforms as well as adverse shocks to the country's funding conditions.
De Guzman said constraints to the country's creditworthiness included limited transparency in the scale of non-financial public sector indebtedness and the increasing use of off-budget financing vehicles.
In addition, high household debt, combined with a pronounced appreciation in housing prices, represented a potential vulnerability to the banking system that could adversely affect overall economic conditions.