July 15, 2022
PETALING JAYA – The Ministry of Finance has refuted recent claims that Malaysia is on the verge of bankruptcy and stressed that the government has always been “very disciplined” in managing its level of debt.
The statement was released after some quarters claimed on social media that Malaysia was set to follow in the footsteps of Sri Lanka, which was recently declared bankrupt.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz noted that the government has never failed to service its interest and debt, although it has already gone through a series of recessionary economic and financial crises.
He added that the federal government’s debt remains at a manageable level.
While the minister refrained from naming those who were spreading the allegations, he said a formal complaint had been filed with the Malaysian Communications and Multimedia Commission over several false reports on social media regarding the position of the country’s debt.
Tengku Zafrul said the federal government was practicing prudent debt management through existing laws.
For example, the country’s offshore borrowing stood at RM29.4 billion at the end of June 2022, well below the RM35 billion threshold set under the Foreign Loans Act 1963.
Meanwhile, the government’s statutory debt represented 60.4% of gross domestic product (GDP) at the end of June 2022.
Under the Temporary Public Finance Measures (Coronavirus Disease 2019) (Amendment) Act 2021, it is stipulated that the statutory debt ceiling shall not exceed 65% of GDP.
In addition to this, Section 98(1)(b) of the Federal Constitution states that the government shall always give priority to debt charges over other operating expenditures.
Tengku Zafrul added that 97% of federal government debt is denominated in ringgit.
This reflects prudent debt management since exposure to currency 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 continuously assess a country’s debt level as well as other factors such as a prudent fiscal framework, good 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 was still at a manageable level.
“Recently, S&P has also postulated that government policy planning will support the strengthening of the country’s fiscal position,” he said.
The Minister stressed that the important aspects of debt management are affordability and debt 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 continued improvement in wholesale trade and Retail.
He pointed out that the economy is gradually improving and has started to expand, based on the various indicators for May 2022.
To accelerate the momentum of recovery, Tengku Zafrul said the Ministry of Finance has launched engagement sessions with the aim of establishing measures that take into account the needs of various stakeholders.