S&P affirms Malaysia’s credit ratings but flags political risks

S&P Global Ratings has maintained Malaysia's sovereign credit ratings at A-, A-2 for long-term and short-term foreign currency debt respectively, as well as A for long-term and A-1 for short-term local currency debt. However, the agency has warned that these ratings could be lowered within 24 months if political stability in Malaysia deteriorates.

S&P highlighted the country's robust economic growth, improving fiscal performance and monetary policy flexibility as key factors supporting its ratings. The agency also emphasized the importance of Malaysia's stable political environment for achieving political stability, further fiscal consolidation and economic reforms. Net general government debt as a percentage of GDP decreased to 69.5% in 2025 and is expected to fall further to 67.8% this year.

S&P noted that political stability has improved significantly following a period of frequent government changes between 2018 and 2022 under the Pakatan Harapan-led coalition. Nevertheless, the agency cautioned that policy uncertainties may arise as the prospects of general elections become more prominent. S&P also pointed out that rising private-sector external borrowings could pose a potential threat to Malaysia's external position, with the country's total external debt reaching RM1.51 trillion, or 70.1% of GDP.

The rating agency stated that Malaysia's institutional strength could mitigate the risk of political instability. Additionally, S&P mentioned that the country's external position is supported by moderate current account surpluses and a large export base, both of which have historically been a ratings strength. Other international rating agencies, including Moody's and Fitch, have also affirmed Malaysia's sovereign credit ratings, with the latter maintaining a stable outlook for all three major global rating agencies.