Treasury rules out raising revenue by selling bonds to BNM

 

In a parliamentary reply, the finance ministry said Bank Negara’s holdings of government debt securities stood at 6.3% in 2022.

KUALA LUMPUR: The government has no intention of using the “debt monetisation” strategy as one of the ways to increase government revenue, the finance ministry said in a parliamentary reply.

The ministry said there was strong investor demand for government securities, supported by sufficient domestic market liquidity of around RM158.7 billion.

“The debt monetisation method can also affect investor confidence and accelerate the outflow of funds, potentially increasing the government’s financing costs,” the Treasury said in a written reply to William Leong (PH-Selayang).

Leong had asked whether the government had considered debt monetisation or the method of selling government bonds to Bank Negara Malaysia as a way to increase revenue.

The Treasury said the federal government’s fiscal borrowing programme is implemented based on the need to refinance matured debts and fiscal deficits.

It added that for the 2020-2022 period, the government borrowing amount was high to provide fiscal support and accelerate post-pandemic economic recovery.

“The government has implemented a prudent financing strategy by adhering to the debt-related legislation which has been stipulated,” the ministry said.

The financing strategy includes a focus on domestic issuances to support the local bond market while reducing borrowing costs and exposure to foreign exchange rate risk.

The ministry said Bank Negara’s holdings of government debt securities stood at 6.3% in 2022, from 2.5% at end-2021.

“The purchase of government securities by BNM is part of the country’s monetary policy strategy in managing domestic market liquidity to ensure market stability during excessive volatility or liquidity downturns,” it added. - FMT