Malaysia faces credit ratings cut

Malaysia faces credit ratings cut
By Melissa Goh | Posted: 27 April 2012 2051 hrs

  MALAYSIA: Concerns have been raised about Malaysia's high national debt, which currently stands at 54 per cent of its gross domestic product (GDP).

International ratings agencies Standard & Poor's and Moody's are warning of a possible credit rating downgrade if Kuala Lumpur does not rein in its federal government debt.

Continuous government spending to gain public support ahead of the upcoming general election may have put Malaysia at risk of a credit downgrade.

A rating cut would be its first in 15 years.

However, Malaysia's central bank has brushed aside that concern.

It said the national debt level at 54 per cent of GDP is manageable, given Malaysia's sound economic fundamentals, improved foreign direct investment (FDI) inflows, and growth of a forecast four to five per cent this year.

Bank Negara also noted more than 90 per cent of the debt is domestically funded, which means Malaysia's external exposure is very minimal.

Bank Negara Malaysia governor Zeti Akhtar Aziz said: "The government external indebtedness is only two per cent so it's very low.

"Very often, countries have problems because foreign borrowing is very high. For us, the borrowing in mainly domestic, our financial system has been able to absorb this."

Still, there are concerns the government's spending spree ahead of a general election may drive federal government debt level to above 60 per cent.

Observers said the next cabinet voted into power must seriously take concrete steps to reduce its huge subsidy bill exceeding US$10 billion as well as to introduce a hugely unpopular goods and services tax to shore up the government's revenue.

While a credit rating downgrade will hurt investor confidence, a weak mandate at the polls means the government will find it difficult to push through some of its tough structural reforms.

Malaysia must call its next election before May next year.

- CNA/wk