KUALA LUMPUR, July 19 (Xinhua) -- Fitch Ratings on Monday affirmed Malaysia's long-term foreign-currency issuer default rating (IDR) at 'BBB+' with a stable outlook.
Malaysia's rating balances prospects for strong and broad-based medium-term growth and persistent current account surpluses with a highly diversified export base, against high public debt, a low government revenue base and lingering political uncertainty, the rating agency said in a statement.
It also said Malaysia's economy is gradually recovering from a contraction of 5.6 percent in 2020 caused by the COVID-19 pandemic, even though social distancing measures have been tightened over recent months.
While a nationwide lockdown in place since the beginning of June due to a third COVID-19 wave is negatively affecting the services sector, it said, manufacturing and exports continue to benefit from thriving demand for Malaysia's export products, including electronics, crude oil and personal protective equipment made of rubber.
Fitch expects Malaysia's gross domestic product (GDP) growth of 4.5 percent in 2021 and 6.3 percent in 2022, as the output gap narrows and the vaccine roll-out gathers pace, which should allow the services sector to benefit from pent-up demand.
Meanwhile, as a result of the relief spending and reduced government revenue, it expects Malaysia's fiscal deficit to rise to 6.5 percent of GDP in 2021 from 6.2 percent in 2020.
It also forecasts Malaysia's government debt to reach 78.1 percent of GDP in 2021, from a pre-pandemic level of 65.2 percent in 2019.
However, it expects the debt ratio to decline slightly to 77 percent of GDP in 2022 and for this trend to continue, facilitated by the resumption of strong GDP growth.
It also expects a gradual reduction in the fiscal deficit, which is forecast to average 5.2 percent of GDP over 2021 through 2023 as growth lifts revenues and COVID-19-related spending measures lapse.
Meanwhile, it expects the Malaysian Central Bank to start its tightening cycle in 2022 with a policy rate hike of 25 basis points.
"Monetary policy is likely to remain supportive of economic activity after Bank Negara Malaysia reduced its policy rate by a total of 125 basis points since the start of the pandemic. The window for further policy rate cuts appears to be limited, given the approaching U.S. Federal Reserve tapering and an increase in inflation in Malaysia, albeit from the base effect from low fuel prices last year," it said. Enditem