MALAYSIA’S fiscal consolidation drive is showing tangible progress, with the government’s efforts to narrow the fiscal deficit and manage public debt beginning to gain international recognition, potentially setting the stage for an improved sovereign credit outlook.
Bernama cited Bank Muamalat Malaysia Bhd’s chief economist, Dr Mohd Afzanizam Abdul Rashid, saying, “Our foreign reserves have risen to US$119.9 billion from US$115.5 billion in the first half of 2025, while foreign ownership of Malaysian Government Securities (MGS) increased to 35.6 per cent in May from 32 per cent in January. This reflects a positive view of the government of Malaysia’s creditworthiness.”
The country’s fiscal deficit has narrowed to 4.5 per cent of GDP, down from 5.7 per cent, while the deficit in absolute terms fell to RM34 billion in the first half of 2025, compared with RM46 billion over the same period last year.
Crucially, these gains are being channelled into more targeted support programmes for Malaysians. “The government allocated RM13 billion for the STR and SARA programmes in 2025, the highest ever distributed for cash aid in Malaysia, compared to RM10 billion last year,” said Mohd Afzanizam. “Recipients have increased to 5.4 million from 700,000 previously, a shift away from blanket subsidies towards more focused assistance.”
He added that Malaysia’s fiscal prudence and restructuring of subsidies could prompt a more favourable review of the country’s sovereign credit ratings, currently standing at A3 (Moody’s), A- (S\&P Global Ratings), and BBB+ (Fitch Ratings).
“The realignment of subsidies and continued fiscal consolidation will eventually yield positive outcomes and improve the government's financial position,” he noted.
On the international front, Mohd Afzanizam said the outlook for the US dollar appears increasingly weak. “The US is no longer rated triple-A across the board. All three major rating agencies now classify US debt around AA+ or Aa1, reflecting rising concerns over fiscal deficits, mounting debt levels, and political gridlock.”
This shift in sentiment is fuelling a global move away from the greenback. “Geopolitical tensions are also contributing to this shift, as more countries look to diversify their trade partnerships and reduce reliance on the US dollar,” he added.
He further warned that proposed US policy changes, including US\$4.5 trillion in tax cuts funded by reductions in social spending, could place further pressure on the dollar. “The tax cuts mainly benefit high-income earners, who have a lower marginal propensity to consume. So the stimulus effect on GDP growth may be limited.”
Combined with new tariff policies, these measures could raise business costs and stoke inflation, undermining long-term economic momentum. “I believe the US dollar is on a weaker long-term trajectory due to several structural factors,” he concluded.
The ringgit closed on Friday at 4.2180/2260 against the US dollar, appreciating 5.8 per cent since the start of the year. - July 6, 2025
