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

S&P Global Ratings has affirmed Malaysia's sovereign credit ratings, maintaining A- long-term and A-2 short-term foreign currency ratings, along with A long-term and A-1 short-term local currency ratings. The agency also stated that the outlook for the long-term ratings remains stable. S&P highlighted Malaysia's consistently strong economic growth, high monetary policy flexibility, and moderate current account surpluses as key factors supporting the sovereign ratings.

The country's external position has historically been a strength, with consistent current account surpluses for over two decades. S&P expects the net general government debt as a share of GDP to decrease further to 67.8% this year, from 69.5% in 2025. The agency noted that Malaysia's political stability played a crucial role in achieving fiscal consolidation and further economic reforms following a period of political instability from 2018 to 2022.

While the relative stability of the Anwar Ibrahim administration has created a more predictable policymaking environment, policy uncertainties may arise as general elections approach. S&P also warned that rising private-sector external borrowings could present a pressure point on Malaysia's external position, as the country's total external debt reached RM1.51 trillion, or 70.1% of GDP, at end-June 2026.

If Malaysia's external position improves materially or fiscal outcomes outperform expectations, the rating agency could potentially upgrade its ratings within the next two to three years. Other international rating agencies, such as Moody's and Fitch, have also reaffirmed Malaysia's investment-grade sovereign credit ratings with stable outlooks.