PETALING JAYA: Fitch Ratings has affirmed Malaysia’s long-term foreign-currency issuer default rating (IDR) at ‘A-’ with a stable outlook.

The rating agency said the ‘A-’ rating reflects higher growth rates than the peer median and a net external creditor position which is supported by steady current account surpluses and large external assets.

However, it said the rating is constrained by high government debt, low per capita income levels and weak standards of governance relative to rating peers.

Meanwhile, Fitch sees downside risks to the government’s 2019 deficit target, which is based on an optimistic oil price assumption of US$70 per barrel and above Fitch’s forecast of US$65 per barrel.

The 2019 budget targets a deficit of 3.4% of gross domestic product (GDP) in 2019 and 3% of GDP in 2020.

However, Fitch assumes that expenditure cutbacks will offset any revenue shortfall, and forecasts a general government deficit of 3.4% of GDP in 2019 (current ‘A’ median -1.7%), in line with the authorities’ target.

Nevertheless, Fitch said substantial non-oil revenue measures would be required for the government to meet its medium-term deficit targets unless oil prices recover, posing a risk to the fiscal outlook in Fitch’s opinion.

It forecasts general government debt-GDP to stabilise at around 62% in 2019 and 2020, above the current peer median of 49%.

“Our debt numbers include officially reported committed government guarantees. Beyond the fiscal risks outlined above, there are risks to debt containment from contingent liabilities related to public-private partnerships which may migrate to the sovereign balance sheet as the government continues to improve the transparency of public finances,” it said.

Fitch expects growth to slow to around 4.5% in 2019 and 2020 from 4.7% in 2018, on weaker export performance and slowing investment activity, but to remain above peers.

Meanwhile, Fitch said outlook for exports is uncertain because of trade tensions between the US and China and its expectations for low oil prices.

However, it said private consumption is likely to remain supportive of growth due to favourable labour market conditions and the government’s plans to disburse income tax and GST refunds of around RM37 billion during the year.

The growth outlook is subject to downside risk, as elsewhere in the region, from the slowdown in China and a further escalation of trade tensions with the US, it added.

Additionally, Fitch expects the current account surplus to narrow further in 2019 as demand for some key exports such as electronics, oil and liquefied natural gas is likely to stay weak.

The current account surplus declined to 2.3% of GDP in 2018 from 3% in 2017 on weaker exports of electronics and commodities.

Foreign-currency reserves fell in 2018 to US$101.4 billion (4.8 months of current external payments; current peer median 4.3 months) as Bank Negara Malaysia intervened during the year to dampen depreciation pressures.

However, Fitch said reserves have picked up subsequently as pressures on emerging markets subsided.

Meanwhile, it forecasts the banking sector’s performance to remain broadly stable despite some softening in growth and pockets of asset-quality risk in some sectors.

“Profitability among Fitch-rated banks should hold up well, and bank balance sheets to remain generally sound – which should help the sector weather unexpected shocks.

“The sector’s common equity Tier 1 ratio and liquidity coverage ratio of 13.1% and 143%, respectively, at end-2018 indicated healthy capital and liquidity positions in aggregate,” it added.