Malaysia in dire need of revenue and expenditure reforms

The country's financial system and corporate sector have made Malaysia's large fiscal deficits and high government debt "affordable".

But their credit profile could still be improved by fiscal reforms that address weaknesses in the national finance. 

Here's more from Moody's EPI:

A Moody's credit analysis titled "Malaysia" states that Malaysia's A3 sovereign rating is anchored by resilient growth, a strong external position, and deep and liquid domestic capital markets that assure favorable financing conditions.

The country's financial system and strong corporate sector contribute to the country's net international investment surplus.

These advantages have ensured the 'finance-ability' and 'affordability' of Malaysia's large fiscal deficits and higher government debt relative to its peers.

The stable outlook is supported by recent trends in economic performance, as well as the initial gains from the government's efforts at structural reform.

Malaysia's credit profile would be further enhanced by fiscal reforms that address weaknesses in both revenues and expenditures.

Moody's also expects political pressures due to the impending parliamentary elections to be reasonably managed.

The report notes that the trade channel as the likely source of transmission of the euro area crisis to the Malaysian economy.

The sound and liquid position of Malaysia's banking system mutes contagion risk from the financial channel, should euro area banks deleverage.

Also, capital market depth and the large buffer of foreign exchange reserves guard against a disruptive reversal of non-resident accumulation of Malaysian government debt.