Economists unfazed by Malaysia’s debt almost hitting ceiling

© Provided by The Malay Mail Online Economists have expressed confidence that Putrajaya would be able to keep its debt situation under control. — AFP picKUALA LUMPUR, March 19 — Economists have expressed confidence that Putrajaya would be able to keep its debt situation under control even though the sovereign debt level hit 54.5 per cent of the GDP, just shy of its self-imposed 55 per cent limit.

Moody’s Investors Service’s vice president Christian de Guzman said he did not foresee any immediate effect should the total debt surpass the 55 per cent limit.

“We do not think there are any immediate ramifications of total debt breaching the threshold of 55 per cent of GDP.

“This is because the actual statutory legal limit of 55 per cent of GDP incorporates only Malaysian government securities, government investment issues, and Islamic treasury bills,” the official from the global credit ratings agency told Malay Mail Online in an email reply.

The Finance Ministry disclosed to Parliament on Thursday that the country’s national debt was at RM630.5 billion as of last December 31.

Putrajaya said 96.6 per cent, or RM609.1 billion, was domestic debt, while RM21.5 billion or 3.4 per cent was offshore debt.

The ministry also said the government has given out RM177.7 billion in government guaranteed loans as of last year, mainly to public entities Dana lnfra Nasional Bhd and Prasarana Malaysia Bhd to execute infrastructure development projects.

Affin Investment Bank chief economist Alan Tan said he was confident the country’s debt level would not breach 55 per cent of the GDP, as long as the government remained committed to its fiscal consolidation efforts.

“We are confident in the government’s fiscal consolidation plans and the economy is slowly growing. We expect the GDP to grow by 4.5 per cent this year and five per cent next year,” he said.

Apart from fiscal consolidation plans, Tan urged the government to execute cost cutting measures to ensure more robust economic growth.

“With the proper steps, which I believe the government has embarked on, the country’s debt should remained below the 55 per cent although there are external factors like global oil price and lower revenue from petrol related deals,” he said.

Another economist said there was nothing alarming about the national debt hitting 54.5 per cent of the GDP, pointing out that it used to be almost 100 per cent of the GDP in the 1980s.

“Did we go bankrupt then? No. In fact, if you factor in the contingent liability, which is about 20 per cent, that would mean we have surpassed the self-imposed limit,” said the economist, who declined to be named.

Contingent liabilities are potential obligations that the country may incur due to unforeseen events.

“Our debt is mainly due to infrastructure development projects. This is better than using money to pay salaries or cushion subsidies and other unrelated expenditures,” he said.

Moody’s previously said that Malaysia would likely face greater economic challenges this year if the government did not address the sovereign debt pile and debt affordability with cuts to trade revenue.