Tariff shocks pose a major threat to Malaysia’s sovereign credit rating, given the potential disruption to economic growth and fiscal consolidation, according to Moody’s Investors Service.
The ratings firm sees downside risks to its initial projection of 5% growth for Malaysia this year due to exposure to global trade tensions. There’s also a possibility that the government increases spending to counter headwinds from US-imposed levies, said Christian De Guzman, senior vice-president at Moody’s.
“If the global economic outlook were to turn very significantly and the government would perhaps take measures to offset some of that weakening in the global economy, they could perhaps delay or postpone the petrol subsidy re-targeting,” said De Guzman, referring to the government’s plans to end blanket subsidies for its most popular gasoline by mid-year.
“The risks to fiscal consolidation are there,” he said in an interview on Monday.
Malaysia has since 2004 enjoyed an A3 rating at Moody’s — the highest among peers in developing Southeast Asia. While its credit score has withstood the fallout from the 2008 global financial crisis and the Covid pandemic, the double blow from US tariffs clouds the country’s prospects.
Moody’s changed its outlook for Thailand to negative just last week, citing potential impact from higher levies.
The government is revising down its growth outlook with the economy already expanding at a slower pace in the first quarter ahead of the planned tariffs. Moody’s is set to publish its updated global economic forecasts this week.
There may be “some damage to the government’s balance sheet” if there’s no assurance that any additional fiscal spending would be pulled back in the short term, De Guzman said.
To be sure, Malaysia’s political stability since Prime Minister Anwar Ibrahim took power has allowed it to accelerate economic and political reforms after a revolving door of leaders from 2018 to 2022, he said. That could also provide a more solid backdrop for fiscal repair, he added.
“We do want to emphasise that much has been done under the current government because it has been enabled by that return of political stability,” said De Guzman.