KUALA LUMPUR: Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB+' with a stable outlook.

The international credit rating agency highlighted that Malaysia's ratings are supported by strong medium-term growth driven by robust domestic and foreign investments, persistent current account surpluses, and a diversified export base.

These strengths, however, are offset by challenges such as high public debt, a low revenue base relative to current expenditure, and weaker external liquidity compared to its peers.

"Steady labour market conditions and income boosts from pay hikes for civil servants in December 2024 and January 2026 are expected to support household spending, with growth further bolstered by investments from government-linked companies and foreign investment tied to supply-chain diversification," Fitch said in a statement today.

While Malaysia's export performance has benefited from the global tech upcycle in 2024, Fitch expects this momentum to slow in 2025 due to weaker external demand. Growth prospects are also subject to downside risks from escalating geopolitical tensions.

Fitch forecasts the federal government's fiscal deficit to narrow to 3.5 per cent of gross domestic product (GDP) in 2026, driven by continued subsidy rationalisation and modest tax increases.

"This represents a credible and gradual fiscal consolidation path," the agency noted.

It added that Budget 2025 projects the federal government's deficit to decline to 3.8 per cent of GDP, from an estimated 4.3 per cent in 2024.

"We expect federal government revenue to remain steady in 2025 at 16.5 per cent of GDP, similar to our 2024 estimate. New budget measures, including a tax on individual dividend income and an enhanced sales and service tax, are likely to bring limited additional revenue, partly offset by lower petroleum-related revenue," Fitch said.

The agency also expects Malaysia's current account to remain in surplus over the medium term, with a projected surplus of 1.4 per cent of GDP in 2024. This is attributed to large import bills for intermediate goods and capital investments.

"Malaysia's diversified exports and competitive manufacturing sector position the country well to benefit from global supply chain shifts. Approved foreign investments rose by 18 per cent year-on-year in the first half of 2024, indicating increased foreign investment realisation in 2025," it added.

– BERNAMA