S&P warns on Malaysia's sovereign rating amid potential challenges from corruption saga

Key Points
  • The corruption scandal involving PM Najib Razak and 1MDB could affect Malaysia's sovereign rating in the near-to-medium term, S&P warned.
  • For now, the country's outlook remains stable and political issues won't impede Malaysia's policy flexibility, S&P said.
Authorities around the world, including the United States, Switzerland and Singapore have looked into anti-money laundering breaches relating to 1MDB.
Olivia Harris | Reuters

Malaysia's sovereign rating may be in trouble as an ongoing corruption saga threatens to destabilize the nation's fiscal position, S&P Global Ratings has warned.

In a Thursday statement that affirmed the Southeast Asian country's A-/A-2 foreign currency and A/A-1 local currency ratings, S&P said Kuala Lumpur's outlook remains "stable" but noted that the scandal surrounding state investment fund 1Malaysia Development Berhad (1MDB) and upcoming elections could challenge ratings in the near-to-medium term.

"Those challenges could manifest themselves via a rise in the cost of refinancing Malaysia's sizable gross external financing needs, or via nonresident outflows from Malaysia's deep local-currency government bond market," S&P said.

For now, these issues won't "materially impede policy flexibility and responsiveness," the agency continued.

Questions about 1MDB's finances first came to widespread attention after a Wall Street Journal article in 2013 found nearly $700 million from the debt-ridden fund had been transferred to Malaysian Prime Minister Najib Razak's personal bank account.

Najib has repeatedly denied taking money for personal gain and local authorities have cleared him of any wrongdoing. However, money-laundering investigations remain underway in the international community, particularly in the U.S., Switzerland and Singapore.

The probes have revealed a complex web of financial transactions involving shell companies and various individuals, including Hollywood actor Leonardo DiCaprio. Multiple banks have also had their branches closed down and fined for lapses relating to 1MDB dealings.