Markets will recover from debt shock, says economist

Barjoyai Bardai says it is 'a good strategy' for the government to state all maximum possible losses as the market will show a tremendous improvement rapidly after absorbing the shock.

Barjoyai Bardai says the markets will recover tremendously after the initial shock. (Facebook pic)

PETALING JAYA: An economist has lauded the new federal government for clarifying Malaysia’s government debt and liabilities, saying it is a smart move to help mend the country’s financial situation.

Referring to the announcement of the RM1,087.3 billion figure as a “big bath”, Universiti Tun Abdul Razak’s Barjoyai Bardai said it was good strategy for the government to state all the possible losses to their maximum.

“When the economy gets better, it will recover from this shock of the new regime shift and the economy will show a tremendous improvement rapidly because all possible liabilities and contingencies have been discounted by the market,” he said.

Former prime minister Najib Razak, who was also finance minister, had admonished the new government today for claiming that the nation’s debt was RM1 trillion, without providing details. He said the debt-to-GDP ratio was 65% – a big jump from the official 50.9% figure.

Najib said the “alarming and confusing statements” had led to Bursa Malaysia suffering the biggest fall among all stock markets worldwide, resulting in tens of billions of ringgit in market value being wiped out in one day.

“Our Bursa index fell 40.78 points today or 2.21% while the Indonesian stock index added 0.71%,” he had said on Facebook.

Barjoyai said the concern now was market sentiment which is determined by perception and psychological effect as investors were on the lookout for any unrest following the recent general election.

He said that until they are certain that the environment is stable and business is back to usual, they would not be willing to take the risk of venturing into the market.

Developments in world financial markets had also contributed to deterring domestic market recovery. The prospect of higher interest rates in the US had caused the US dollar to rise, depressing the ringgit, and also affecting other markets such as Tokyo, Hong Kong, Singapore and Seoul.

“The market has been dampened by the exit of short-term foreign investors who went back to greener pastures in the US market,” he said, adding that they would return soon.

“So the 2% drop in that composite index is not something of great concern to the local investor. It is actually an opportunity for the local investor to take advantage of the price adjustment,” he said. -FMT