KUALA LUMPUR--Moody's Investors Service Wednesday raised its
outlook for Malaysia's A3 rating to Positive from Stable, citing
better prospects for fiscal reform and continued economic
stability.
The Southeast Asian country has pledged to implement a
long-delayed consumption tax in 2015 and sharply cut its costly
subsidies that have often blown a hole in state coffers. The
country has been running a fiscal deficit since the 1997 Asian
Financial Crisis.
However, the ratings agency warned that Malaysia's fiscal reform
program would be "politically" and "administratively" challenging.
Still, the fiscal reform is expected to "result in narrower fiscal
deficits that will stabilize Malaysia's debt dynamics," Moody's
said in a statement.
Moody's noted that Malaysia's sovereign rating is supported by
the government's "favorable debt structure, the depth of onshore
capital markets, and the high level of domestic savings' which
mitigate the effects of fiscal deficit and high debt that plagues
its peers.
Moody's upgrade in Malaysia's outlook follows its peer Fitch
Ratings' decision in July to downgrade the country's credit outlook
to Negative from Stable due to lack of reforms. Malaysia retained
its A-minus ratings from Fitch and Standard & Poor's, both
investment grade.
In September, the government raised prices of diesel and a
widely-used variant of gasoline that would help the government save
3.3 billion ringgit ($1.04 billion) annually. He has promised to
channel subsidies to the poorest section of the population. Such
fiscal reform will help bring in much needed fiscal discipline the
lack of which was often criticized by the ratings agencies.
Prime Minister Najib Razak, who returned to power after winning
the May election, now has room to push through reforms which he
believes will lift Malaysia's economy to the ranks of wealthier
Asian nations such as Singapore and South Korea.
Write to Jason Ng in Kuala Lumpur at jason.ng@wsj.com