KUALA LUMPUR: Malaysia’s government debt to gross domestic product ratio of 51 per cent is “quite high” compared with other countries with an “A” sovereign credit rating, Moody’s Investors Service said.
The high debt, however, was largely denominated in ringgit, mitigating external risks to the Southeast Asian nation.
“Just to put things into perspective, Malaysia’s government debt-to-GDP is about 51 per cent and the median for A-rated sovereigns is 41 per cent,” Moody’s sovereign risk analyst Anushka Shah said.
Moody’s, which affirmed the Malaysia’s local and foreign currency issuer and senior unsecured bond ratings at A3 in December last year, maintained that rating.
Shah said that with most of the government debt denominated in the local currency, Malaysia was insulated from global economic events to some extent.
“When you look at the debt profile, we find that almost all the debt – about 97 per cent – is funded in the local currency and that acts as a mitigating factor in the event there is a currency or interest rate shock,” she told a media briefing on Wednesday (March 21).
Although Malaysia’s foreign reserves have grown in the past few years, serving as a buffer for external vulnerability and volatility, Moody’s noted that maturing debt obligations have surpassed reserves.
“Malaysia indicates to us that maturing debt obligations are larger than the stock of reserves simply because of certain peculiarities in the external debt profile,” Shah said.
“You have a large component of short term external debt and that means debt obligations each year are larger than the stock of reserves. So that’s a vulnerability that we take into account when we look at Malaysia’s profile,” she said.
On risks arising from bonds issued by 1Malaysia Development Bhd (1MDB), a financial scandal-hit government investment firm, Shah said the credit rating agency did not view it as a threat to Malaysia’s sovereign fiscal strength as a debt consolidation plan has proceeded as normal.
