Moody's raises Malaysia's outlook to positive

Moody's Investors Service has affirmed Malaysia's government bond and issuer ratings at A3. The outlook has been changed to positive from stable.

The international ratings agency said the change in the outlook was driven by improved prospects for fiscal consolidation and reform and continued macroeconomic stability in the face of external headwinds.

Moody's said in a statement today that it had also affirmed Malaysia's long-term foreign currency (FC) bond ceiling at A1 and its long-term FC bank deposit ceiling at A3. The short-term FC bond and bank deposit ceilings were affirmed at P-1.

It said these ceilings act as a cap on ratings that can be assigned to the FC obligations of entities other than the government that are domiciled in the country.

In a related rating action, Moody's affirmed the instrument ratings of Khazanah Nasional Bhd at A3, and revised the outlook to positive from stable.

The Malaysian government guarantees these instruments.

Following the May General Elections, the Malaysian government led by Prime Minister Datuk Seri Najib Razak has begun its long-delayed fiscal reform programme to accelerate fiscal consolidation despite a weaker political mandate.

The prime minister has announced the implementation of a Goods and Services Tax (GST) in 2015 for the purposes of broadening the tax base and easing the government's reliance on petroleum-related receipts.

In addition, subsidy rationalisation started in September with an increase in fuel prices, helping to stem the growth of a subsidy bill that has accounted for an increasingly large portion of the government's spending.

"Although the government's revenues are dependent on petroleum-related receipts, we expect limited volatility from these items, including dividends, royalty payments, and taxes sourced from the national oil and gas company, Petroliam Nasional Bhd," it said.

Moody's affirmed the issuer rating of Petronas at A1 in May, and recently assigned a positive outlook to the global integrated oil and gas sector.

It also noted that Malaysia's sovereign rating is supported by the government's favourable debt structure, the depth of onshore capital markets, and the high level of domestic savings.