July 15, 2022
PETALING JAYA – The Finance Ministry has refuted recent allegations that Malaysia is on the verge of bankruptcy and highlighted that the government has always been “highly disciplined” in managing its debt levels.
The statement was issued after some quarters claimed on social media that Malaysia is set to follow the footsteps of Sri Lanka, which was recently declared as bankrupt.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz noted that the government has never defaulted on servicing its interest and debt, despite going through a series of recessionary economic and financial crises before.
He added that the federal government’s debt remained at a manageable level.
While the minister stopped short of naming those spreading the allegations, he said an official complaint was lodged with the Malaysian Communications and Multimedia Commission on several false social media reports about the country’s debt position.
Tengku Zafrul said the federal government practiced prudent debt management through existing laws.
For example, the country’s offshore borrowings amounted to RM29.4bil as at end-June 2022, well below the RM35bil threshold set under the External Loans Act 1963.
Meanwhile, the government’s statutory debt accounted for 60.4% of gross domestic product (GDP) as at end-June 2022.
Under the Temporary Measures for Government Financing (Coronavirus Disease 2019) (Amendment) Act 2021, it is stipulated that the statutory debt limit should not exceed 65% of GDP.
On top of these, Article 98 (1) (b) of the Federal Constitution stipulates that the government must always prioritise debt charges over other operating expenditure
Tengku Zafrul added that 97% of the federal government’s debt is denominated in ringgit.
This reflects prudent debt management as exposure to foreign exchange risk is minimal.
“A high level of debt does not mean that the country is at risk of bankruptcy.
“Various international rating agencies such as S&P Global, Fitch and Moody’s constantly assess a country’s debt level together with other factors such as a prudent fiscal framework, sound governance and resilient external position as well as the strength of its economy.”
He said the International Monetary Fund had also acknowledged that Malaysia’s debt position is still at a manageable level.
“Recently, S&P also postulated that the government’s policy planning will support the strengthening of the country’s fiscal position,” he said.
The minister highlighted that the important aspects of debt management are debt affordability and sustainability.
In this regard, the federal government’s debt is “clearly still under control”, according to him.
Tengku Zafrul said the false social media reports on the country’s debt position are seen as intending to mislead the public and could potentially affect investor confidence in Malaysia.
Last week, Tengku Zafrul said the country’s economy is expected to continue to strengthen in the second quarter of this year, following the encouraging GDP growth of 5% in the first quarter, including the continued improvement in wholesale and retail trade.
He pointed out that the economy was gradually improving and had started to expand, based on the various indicators for May 2022.
To accelerate the recovery momentum, Tengku Zafrul said the Finance Ministry had kick-started engagement sessions in an effort to establish measures that took into account the needs of various stakeholders.