KUALA LUMPUR: Fitch Ratings’ (Fitch) affirmation of Malaysia’s sovereign credit ratings at BBB+ with a ‘stable’ outlook reflects the government’s commitment to fiscal reform and the country’s ability to maintain economic growth momentum and withstand weak and volatile global conditions, said the Ministry of Finance (MoF).

In a statement, the MoF said the government is committed to pursuing fiscal consolidation and rebuilding fiscal buffers for long-term sustainability.

“In the medium term, the government is committed to reducing the fiscal deficit from 5.6 per cent in 2022 to 5.0 per cent of gross domestic product (GDP) in 2023 as estimated, and subsequently to 4.3 per cent in 2024.

“At the same time, Budget 2024 maintains an expansionary fiscal stance with budgeted development expenditure of RM90 billion to support the momentum of domestic economic growth and meet the needs of the people,” it said.

Under the Madani Economy framework, the MoF said the pace of fiscal consolidation would be further accelerated to achieve the medium-term deficit target of three per cent, and fiscal reforms continued to be a priority to the government.

“This is reflected in the recently approved Public Finance and Fiscal Responsibility Bill (FRA) by the Parliament last month,” it said.

The ministry said the FRA would institutionalise accountability and transparency in public finance for long-term fiscal sustainability and macroeconomic stability.

“Moving forward, the government is confident that the initiatives outlined in the Madani Economy framework and the rolling out of the measures under the various national plans, namely the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) 2030 and the Mid-Term Review of the Twelfth Malaysia Plan will galvanise growth further,” it said.

The MoF said Fitch stated that Malaysia’s ratings balance a diversified economy with strong medium-term growth prospects against high public debt, a low revenue base relative to the operating expenditures, and political considerations that may hinder long-term policymaking and reform implementation.

It said the credit rating agency expects Malaysia’s real GDP growth to moderate to 4.0 per cent in 2023 and 4.2 per cent in 2024, amid improving political stability in the country.

“Fitch also anticipated weak global demand and trade restrictions to undermine the country’s exports. However, this is expected to be cushioned by resilient domestic demand, supported by growth in wages and investment activities.

“Meanwhile, Fitch commended the country’s current account position, which continues to record surpluses for more than two decades and expects the current account to remain in surplus in the medium term, notwithstanding external challenges,” the MoF quoted the rating agency.

Fitch had forecasted Malaysia’s current account to slightly narrow to 2.6 per cent in 2023 (2022: three per cent), but it pointed out that the country is well-positioned to benefit from the global supply chain diversification due to the competitive manufacturing sector and significant foreign direct investment (FDI) inflows since the re-opening of the economy in 2022.

It also predicted that the federal government’s deficit will decline to 3.5 per cent in 2025 amid subsidy rationalisation and the roll-out of the Global Minimum Tax. – Bernama