KUALA LUMPUR: MARC Ratings has reaffirmed Malaysia's AAA sovereign rating, emphasising the country's strong credit fundamentals.
The rating reflects Malaysia's sustained healthy gross domestic product (GDP) growth momentum, efforts to enhance fiscal efficiency, and address structural challenges.
These structural challenges include high subsidies, low tax revenue-to-GDP ratio and elevated government debt.
"Malaysia's consistent current account surpluses, adequate international reserves, small proportion of foreign currency–denominated debt and real effective exchange rate with low volatility reflect the quality of the country's external financial position."
"As such, Malaysia's effective monetary policies have limited the extent to which occasional financial market volatility affects the real economy," it said.
MARC Ratings highlighted the resilience of Malaysia's financial sector, with impaired loans staying low at 1.6 per cent of total loans in the first half of 2024.
The total capital ratio was 18.5 per cent, well above the Basel III minimum requirement of 10.5 per cent, which includes a 2.5 per cent buffer.
The agency said Malaysia's main credit challenges are its high fiscal deficit and debt levels, which the government is closely managing.
MARC Ratings said while the country's tax revenue-to-GDP ratio has recovered to the pre-pandemic level, at 12.6 per cent in 2023, it is below the peer median of 18.9 per cent.
Additionally, public debt is projected to remain around 64.0 per cent of GDP in 2024, higher than the peer median of 55 per cent.
Despite fiscal pressures, MARC Ratings expects Malaysia's debt profile to improve, with the fiscal deficit expected to drop to 4.3 per cent of GDP in 2024 and 3.8 per cent in 2025.
"Looking ahead, key priorities for strengthening Malaysia's credit profile include improving fiscal and debt metrics through sustained fiscal consolidation efforts and ensuring the timely delivery of planned economic targets," the agency added.