Govt to limit loan guarantees following 1MDB affair

KUALA LUMPUR: The government is considering capping the amount of loans it guarantees and basing it on the gross domestic product (GDP).

Prime Minister Dr Mahathir Mohamad also said today the government would expedite the drafting of a Consumer Credit Act to protect consumers.

Mahathir said there should be a limit on government guarantees.

“Currently, the government deficit should not exceed 55% of GDP.

Some guarantees have gone up to RM42 billion. We will have to look at it and place a limit,” he said, alluding to guarantees given out by the previous government in connection with 1MDB.

Mahathir said this after launching the National Strategy for Financial Literacy 2019-2023 by Financial Education Network (FENetwork) at Sasana Kijang, Bank Negara, here today.

In his speech, the prime minister said the national financial literacy strategy was important to develop a society capable of making wise financial decisions which are free from wrongdoing or mistakes.

Financial literacy is also an important tool for individuals to prevent themselves from becoming victims of scam, he said.

FENetwork is an inter-agency grouping co-chaired by Bank Negara and the Securities Commission.

Also present today was Bank Negara governor Nor Shamsiah Mohd Yunus.

Mahathir said literacy and financial skills were among factors that could contribute to sustainable and inclusive economic growth.

The prime minister noted that household and business sector expenditure were among the main drivers of growth in the economy, accounting for 74.2% of GDP.

Between 2011 and 2018, spending by households and the business sector recorded an average growth of 7.8%, he added.

He said household debt in Malaysia – at 82.1% of GDP – was higher than that in countries such as Italy (40.3% of GDP), Japan (58.1% of GDP) and the US (76.3% of GDP).

Although the risk of household debt to domestic financial stability is under control, there are signs that borrowers have difficulty repaying debts, Mahathir said.

This happens primarily to borrowers earning less than RM5,000 per month and living in urban areas.

This observation, he added, was supported by the increasing number of borrowers participating in the debt management programme offered by Bank Negara’s Credit Counselling and Debt Management Agency.

Mahathir also said a Consumer Credit Act was being drafted through a partnership between ministries such as domestic trade and consumer affairs, housing and local government, entrepreneur development and health and Bank Negara, Securities Commission Malaysia and related agencies.

“This act is important because it aims to ensure credit users receive fair service when dealing with creditors.”

Tabling of this act will be expedited in the coming session of Parliament to protect the interests of consumers and promote a healthy credit market, said Mahathir. - FMT