Malaysia’s economy to grow 7.5pct in 2021: S&P

KUALA LUMPUR: S&P Global Ratings has reaffirmed Malaysia’s A- rating with a revision to the outlook to negative from stable.

The reaffirmation comes with S&P’s bullish forecast of a 7.5 per cent growth in the country’s gross domestic product next year.

The 7.5 per cent is more optimistic than the World Bank’s expected 6.9 per cent expansion of Malaysia’s economy next year.

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, when commenting on S&P’s latest move, said the negative outlook was driven by the impact of the Covid-19 pandemic on Malaysia’s economic growth and fiscal position.

Tengku Zafrul said the government believed that its current fiscal policy response was the right course of action.

This is because 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.

“This is further supported by the optimistic outlook on the economy in S&P’s report which projects Malaysia’s strong GDP growth recovery of 7.5 per cent in 2021,” he said in a statement today.

Tengku Zafrul said the current crisis had, in fact, impacted many countries’ sovereign ratings, reflecting the significant challenges in the global economy like weaker growth prospects, larger fiscal deficits and higher debt levels.

He said countries with open economies like Malaysia had responded with substantial macroeconomic and fiscal measures to reduce the adverse health and economic impact caused by Covid-19.

This, in turn, has led to the lower sovereign ratings outlook for several economies, both advance and emerging.

He reiterated that while the outlook revision by S&P had been lowered, the government’s proactive response to the crisis was both timely and appropriate.

“Initiatives and measures under the RM295 billion stimulus and recovery packages – Prihatin, Prihatin SME Plus and Penjana – are aimed at protecting lives, supporting businesses, saving and creating jobs, as well as stimulating the economy.

“Collectively, the Prihatin and Penjana economic stimulus packages worth RM295 billion are expected to contribute more than 3.0 per cent to Malaysia’s GDP growth in 2020,” he said.

Tengku Zafrul said most of the measures introduced under the two packages were either one-off or temporary. This would not have a permanent impact on government finances in the medium term.

Furthermore, he said Malaysia had sufficient liquidity in the domestic market to raise additional financing.

In the medium and longer term, he said the government remained committed to its fiscal reform agenda and would resume its fiscal consolidation effort once the global economy recovers.

“Malaysia has a good track record of fiscal management. During the global financial crisis in 2008/09, Malaysia’s fiscal deficit widened to 6.7 per cent of GDP in 2009.

“Since then, the government had successfully reduced the fiscal deficit to 3.4 per cent of GDP in 2019. Going forward, the government is committed to a medium-term consolidation of the fiscal deficit to below 4.0 per cent of GDP,” he said.

Meanwhile, Tengku Zafrul said Malaysia’s external position remained resilient.

This is supported by a current account surplus, an adequate level of international reserves and large external assets held by banks and corporations and the Malaysian banking system entering the challenging episode from a position of strength.

“The banking system’s capital buffer, at RM121 billion, is more than three times the level during the global financial crisis.

“Ample liquidity, coupled with sound asset quality and a robust risk management framework, will continue to support lending activities and the overall economy,” he said.

Source: NST