Business

Malaysia’s fiscal discipline bolsters sovereign outlook as US Dollar faces headwinds

Efforts to consolidate public finances are yielding results for Malaysia, boosting investor confidence and supporting the ringgit, as global sentiment turns against the US dollar

Updated 1 year ago · Published on 06 Jul 2025 11:51AM

Malaysia’s fiscal discipline bolsters sovereign outlook as US Dollar faces headwinds
The increase of Malaysian foreign reserves and MGS reflects a positive view of the government of Malaysia’s creditworthiness - July 6, 2025

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

Spotlight

Malaysia

Man kidnapped, tortured, and killed following misunderstanding

Malaysia

'I will never forget taxi drivers who backed me in my hardest times' - PM Anwar

Malaysia

Najib fails to secure stay of 15-year jail term, RM11.38b fine in 1MDB case

Malaysia

Ivana Smit’s mother considers Federal Court appeal after RM1.1m award overturned

Education

Schools in Negeri Sembilan, Melaka to reopen tomorrow as haze conditions improve

Malaysia

Zara Qairina inquest: Investigating officer says final findings showed no suspicious circumstances

Malaysia

Man jailed 8½ years for abusing three-year-old boy, forcing the child to eat faeces

World

Pope Leo XIV diagnosed with lung cancer after successful surgery

Malaysia

More than 3,000 Myanmar refugees set for repatriation after Malaysia secures breakthrough

You may be interested

Business

Oil price surge threatens to raise Malaysia’s cost pressures as ringgit steadies

Business

Oil prices rise as Gulf attacks threaten supply recovery

Business

SC expands new co-investment fund in 2027 to unlock growth capital for Malaysian businesses

Business

SC targets stronger board oversight through higher standards for company secretaries