S&P Global Ratings has affirmed Malaysia’s sovereign credit ratings, maintaining a stable outlook based on strong economic growth, fiscal improvements, and flexible monetary policy. The ratings agency confirmed Malaysia’s long-term foreign currency rating at A- and short-term rating at A-2, alongside a long-term local currency rating of A and a short-term local currency rating of A-1.

The stable outlook reflects S&P’s expectation that Malaysia’s economic momentum and current policy environment will support sustained fiscal performance over the next two to three years. The agency forecasts the country’s gross domestic product (GDP) to expand by 5.5% in 2026, following a 5.2% growth rate in 2025. This growth is anticipated to be driven by robust exports, strong household consumption, and ongoing fiscal support.

Malaysia’s economy grew 5.7% year-on-year in the first half of financial year 2026, bolstered by increased shipments in the electrical and electronics and semiconductor sectors linked to artificial intelligence investments, as well as higher energy export volumes. The country has emerged as a leading data centre investment destination in Southeast Asia, attracting an estimated RM386 billion in cumulative investment between 2021 and mid-2026, predominantly from global hyperscalers.

However, S&P cautioned that rapid expansion in this area is straining energy and water resources, which could limit future investment growth if utility capacity is not scaled up. The agency also anticipates a moderation in growth during the second half of 2026 due to ongoing tensions in the Middle East, uncertainties in global trade policies, and potential disruptions in agricultural commodity supplies.

Over the medium term, S&P projects Malaysia’s GDP growth to average 5% annually from 2026 to 2029, with a 10-year weighted-average per capita GDP growth of 3.7%, exceeding the median for countries with similar income levels. Nonetheless, the country’s projected GDP per capita of US$15,600 in 2026 remains below that of many peers within the same rating category.

On fiscal matters, Malaysia continues to pursue gradual consolidation, with the general government deficit expected to narrow to 3.1% of GDP in 2026 from roughly 3.3% in 2025. The agency highlighted the importance of continued revenue reforms and subsidy rationalisation to strengthen fiscal balances, although elevated energy prices may increase subsidy pressures.

S&P also noted rising external borrowings by the private sector as a potential vulnerability. At the end of June 2026, Malaysia’s total external debt reached RM1.51 trillion, representing 70.1% of GDP, with 44% classified as short-term debt. The increase is partly attributed to corporate borrowing to finance specialised IT and data centre equipment amid a digital investment surge.

The agency indicated that Malaysia’s credit ratings could be upgraded if there are significant improvements in its external position or fiscal outcomes exceed expectations. Conversely, the ratings could be downgraded if political instability undermines policymaking or if real GDP per capita growth declines to levels comparable with its peers.