S&P Global Ratings has projected a notable 9% appreciation in the Malaysian ringgit by the conclusion of this year, emphasizing that the currency’s current weakness does not threaten the nation’s sovereign credit rating.
Sovereign Rating Unaffected by Ringgit’s Depreciation
YeeFarn Phua, a sovereign analyst at S&P Global Ratings based in Singapore, reassured stakeholders by stating, “We do not see the depreciating ringgit as a risk to the sovereign rating.” He highlighted Malaysia’s robust external financial health, bolstered by sufficient foreign reserves and steady current-account surpluses, as key factors underpinning this outlook.
Despite the ringgit reaching its lowest point in 26 years earlier this week, influenced by China’s economic slowdown impacting Malaysian exports, Phua remains optimistic. He forecasts the currency, which stood at 4.79 against the dollar, to rise to 4.40 by the end of the year and further to 4.30 by the end of 2025.
Malaysia’s Credit Rating Stability
S&P’s stance aligns with Moody’s Investors Service, both of which affirm the stability of Malaysia’s credit rating amidst the ringgit’s fluctuations. This confidence is partly due to the significant majority of the nation’s debt being denominated in the local currency, mitigating direct impacts from currency volatility. As of the end of 2023, Malaysia’s foreign debt was estimated at approximately RM30 billion (US$6.26 billion), constituting just under 3% of its total debt.
Since 2003, Malaysia has maintained an A- rating with S&P, reflecting a strong capacity for debt repayment. This rating, the highest among developing Southeast Asian countries, has withstood various global economic challenges, including the 2008 financial crisis and the recent pandemic-induced disruptions.
Detailed Outlook and Analysis
- Currency Performance: The ringgit’s performance is closely watched, with its anticipated rebound by year-end attributed to Malaysia’s solid external balances and foreign reserves.
- Sovereign Rating Insights: S&P’s analysis suggests that the depreciating ringgit does not pose a substantial risk to Malaysia’s sovereign rating due to the country’s robust external financial position.
- Debt Structure: The structure of Malaysia’s debt, predominantly denominated in local currency, provides a cushion against the adverse effects of currency depreciation.
- Economic Resilience: Malaysia’s A- rating, upheld since 2003, showcases the nation’s resilience and strong debt repayment capacity amid global economic fluctuations.
S&P Global Ratings’ optimistic forecast for the Malaysian ringgit underscores the resilience of Malaysia’s economy and its adept management of external financial challenges. Despite recent depreciations, the strategic composition of the nation’s debt and its enduring current-account surpluses present a strong case for the anticipated currency appreciation. As Malaysia navigates through global economic headwinds, its sovereign rating remains secure, supported by a strong external position and a prudent debt strategy.
Featured image credit: Chee Siong Teh via iStock