Malaysia's debt-to-GDP ratio runs high among A-rated sovereigns: Moody's

Although Malaysia's foreign reserves have grown in the past few years, maturing debt obligations have surpassed reserves.
Although Malaysia's foreign reserves have grown in the past few years, maturing debt obligations have surpassed reserves.PHOTO: REUTERS

KUALA LUMPUR (REUTERS) - 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).

Possible risks to Malaysia cited by Moody's include a slowdown or stall in economic growth, if the government debt burden continues to rise at a rapid pace or any external shocks that could weaken the ringgit.

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.

1MDB is at the centre of money-laundering probes in at least six countries, including the United States, Switzerland and Singapore.

Civil lawsuits filed by the DOJ in the past two years indicated that a total of US$4.5 billion was misappropriated from 1MDB by high-level officials of the fund and their associates.

She said Moody's looked at the stock of guaranteed debt and the implications that that could have for the sovereign.

"As of now there is one (5.3 billion ringgit) bond outstanding by 1MDB that is guaranteed by the government and another bond with a letter of support from the government that is about US$1.75 billion, so those are the risks we take into consideration but at this point the probability of debt crystallisation is low," she said.