Downward Trend In Debt, Fiscal Reforms Can Support Malaysia’s Sovereign Rating -- Fitch

KUALA LUMPUR, Oct 14 (Bernama) -- The expectation of a downward trend in general government debt and Gross Domestic Product (GDP) that is closer to peer medians, supported by a strong consolidation strategy and improved growth prospects, could put upward pressure on Malaysia’s ‘BBB+’ sovereign rating.

Fitch Ratings said government debt is gradually coming down but is still above the median for Fitch-rated ‘BBB’ category sovereigns of 58 per cent in 2025.

In a note today, Fitch Ratings associate director and sovereigns analyst Kathleen Chen said the latest budget reaffirmed a commitment towards gradual fiscal consolidation, targeting a deficit of 3.5 per cent of GDP in 2026, slightly below the agency’s previous forecast of 3.6 per cent.

“The budget reiterated the medium-term goal to reduce the deficit to three per cent of GDP, although no specific timeline was provided.

“Within the medium-term fiscal framework, the government projects an average deficit of 3.2 per cent of GDP over 2026 to 2028, which implies a deficit of around three per cent by 2028 if consolidation proceeds at the current pace,” she said in a statement.

Chen also said that the government continues to advance rationalisation of subsidies, with estimated annual savings of RM15.5 billion (about 0.8 per cent of 2025 GDP).

“A substantial share of these savings will be channelled to social welfare. Total expenditure is projected to grow by 1.7 per cent. The targeting of the RON95 petrol subsidy announced recently is expected to yield smaller savings than the targeted diesel subsidy,” she added.

-- BERNAMA