Moody's Raises Malaysia's Outlook To Positive

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 [e-mail]