‘M’sia likely to breach debt threshold in 2016’

KUALA LUMPUR: The Malaysian government is likely to breach its self-imposed debt threshold level of 55% of gross domestic product (GDP) this year, said Moody’s Investors Service vice-president and senior analyst of sovereign risk group Christian de Guzman.

Last Thursday, the ministry of finance told the Dewan Rakyat that the government’s debt had reached RM630.5 billion, representing 54.4% of GDP as at December 2015.

De Guzman reiterated that Malaysia sustained a sixth consecutive year of fiscal consolidation in 2015 — the longest such streak among A-rated countries — and yet, it has not led to a significant improvement in government debt ratios.

He added that the country’s debt to revenue, as well as debt affordability, have deteriorated from an already comparably worse position against its peers.

On 1Malaysia Development Bhd’s (1MDB) foreign debt, de Guzman said it poses a lower risk to Malaysia’s financial system compared with six months ago.

“While 1MDB has stoked much controversy since 2014, we did not view it as a systemic risk to public finances, the banking system or the economy. The risk is even lesser now after its debt rationalisation plan,” he told a media roundtable on “Spotlight on Malaysia: Lower Energy Prices and Rising Credit Risks” yesterday.

In his 2015 New Year’s message, Prime Minister Datuk Seri Najib Razak mentioned that 1MDB’s rationalisation plan would see its debt reduced by RM40.4 billion, shaving off almost 96% of its RM42 billion debt as at March 31, 2014.

Meanwhile, the international rating agency expects oil prices to remain low through this year at US$33 (RM123) per barrel, given the supply glut. Reuters yesterday reported that Brent crude was down 39 US cents a barrel at US$41.40, but still up by more than 50% from a multi-year low of US$27.10 in January.

On the oversupply of commercial offices in Kuala Lumpur, especially with the upcoming Tun Razak Exchange (TRX), Moody’s senior credit officer Eugene Tarzimanov is of the view that Malaysia could see a similar situation in Dubai.

“However, there is a difference between the situation in Dubai and Malaysia, in that the funding for the development in Malaysia is generally through financing or borrowings. In Dubai, most of the buildings were funded by equity.

“At the end of the day, it depends on whether the economy has recovered by the time the project (TRX) is ready,” Tarzimanov added.