[MARC] MARC Ratings affirms Malaysia’s sovereign rating at AAA

MARC Ratings has affirmed its unsolicited public information sovereign rating on Malaysia at AAA with a stable outlook based on the rating agency’s national rating scale. The AAA rating reflects Malaysia’s credit strengths, including an open and increasingly diversified economy, sound monetary policy, a resilient financial sector, and continued progress in structural and institutional reforms. Economic growth has remained resilient in 2025 despite external uncertainties and is expected to be sustained in 2026, supported by strengthening foreign investments, particularly in manufacturing and high value–added services, alongside resilient household consumption and a stable labour market.

Malaysia’s monetary policy remains a core credit strength, sustaining price stability and supporting economic growth. Headline inflation remained low, averaging 1.4% year-to-date (YTD) November 2025 (2024: 1.8%). Malaysia’s external position remains strong, with consistent current account surpluses, adequate international reserve buffers, and a low share of foreign currency–denominated public debt. The ringgit strengthened around 8% YTD as of end-November 2025, reflecting contained external pressures.

The domestic financial system remains resilient, supported by strong capital buffers, ample liquidity, and contained credit risks. The total capital ratio stood at 18.2% as of mid-2025, comfortably above the regulatory requirement, while the net stable funding ratio remained above 115% (2H2024: 116.3%), indicating banks’ capacity to withstand short-term and structural shocks. Bank Negara Malaysia’s policy easing through a lower Statutory Reserve Requirement and reduction in the Overnight Policy Rate has helped sustain credit flows and lower funding costs amid global uncertainty.

Notwithstanding these strengths, key credit challenges persist. While fiscal consolidation has progressed, public debt and deficit levels remain elevated relative to peers. The government’s commitment to fiscal consolidation under the Public Finance and Fiscal Responsibility Act 2023 is expected to support a gradual improvement in debt dynamics over the medium term, with the fiscal deficit projected to continue narrowing. Achieving the growth and fiscal objectives set out under the 13th Malaysia Plan, however, will depend on consistent policy execution and effective implementation.

The stable outlook reflects MARC Ratings’ expectation that Malaysia will sustain healthy economic growth, continue improving fiscal efficiency, and make further progress in addressing structural constraints, including broad-based subsidies, revenue leakages and elevated public debt. The outlook also assumes continued political cohesion, as the pace and effectiveness of fiscal and institutional reforms remain closely linked to policy continuity and implementation capacity.

Looking ahead, key priorities for strengthening Malaysia’s credit profile include continued improvement in fiscal metrics while moderating debt accumulation through sustained fiscal consolidation efforts and ensuring the timely delivery of planned economic targets. Conversely, failure to meet fiscal consolidation goals or economic targets as planned could weaken the country’s credit profile.

Augustinne Wong, +603-2717 2938/ augustinne@marc.com.my
Kamal Zharif Jauhari, +603-2717 1779/ zharif@marc.com.my
Dr Ray Choy, +603-2717 1770/ raychoy@marc.com.my