M'sia has sufficient funds and is insulated from debt crisis and recession

By LEONG HUNG YEE

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KUALA LUMPUR: The country has enough funds to cushion the economy, should the contagion from the European debt crisis hit Malaysi according to Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah.
Husni says nation has a RM6bil stimulus spending allocation.

“We have our buffer the RM6bil stimulus spending allocated under the budget initiative. Assuming there's no recession, the buffer will be available to ensure strong growth. If there's a recession, it will help to protect our economy,” he said after officiating the MIA-AFA Conference yesterday.

Asked if Malaysia had funds for another stimulus package under the worst-case scenario, Husni said the Government had its reserves for the purpose.

“We have a RM4bil contingency fund and about RM5bil in Kumpulan Wang Amanah Nasional.

“We have also asked our accountants to review trust funds worth some RM30bil,” he said, adding that those funds were for various programmes, especially the dormant on es, the Government was reviewing.

According to Husni, the Govern ment could also monetise its assets by selling Federal Government land, s uch as that belonging to the Malaysian Rubber Board, to raise funds.

“There are a number of these pieces of land. They are just sma ll plots of three to seven acres that we are not going to utilise. If we are not utilising those land, why can't we privatise it?

“We have managed to raise the value of land through projects, such as the River of Life, which was a federal government initiative to transform the Klang and Gombak rivers into vibrant and liveable waterfronts,” he added.

Separately, Husni said the net national debt was still manageable.

“It is well within our capability (to repay). Our debt ratio to gross domestic product (GDP) must not be more than 55% while external loans must not exceed RM35bil.”

He said the current national debt was still below the critical level of 55% of GDP and the country's loan payment to national revenue was at 10%, which was below the prudent level of 15%.

Meanwhile, the debtserving ratio for external loans was about 2%.

According to the Economic Report 2011/2012, national debt continued to remain low at 28.5% of GDP as at end-June 2011, while federal government debt is projected to be marginally higher at 53.8% of GDP.

Total federal government debt is expected to increase by 11.9% to RM455.7bil in 2011, mainly due to higher borrowings to meet financing requirements.

Of the total, domestic debt accounts for 96.2% or RM438.5bil.

Similarly, the federal government external debt, which is mainly denominated in US dollars and yen, is projected to increase by 3.2% to RM17.3bil following the successful issuance of the US$2bil dual-tranche Wakala global sukuk.

Federal government external debt, however, continues to remain low and manageable at 3.8% of total debt (2010: 4.1%).

MIDF Research economist Anthony Dass said the debt rose to 12.3% in 2010 on the back of a 7.2% increase in GDP, implying that the 2010 fis cal deficit stood at 53.1% of GDP for the second consecutive year from 53.7% in 2009.

“In our view, the debt level is still at a manageable level but what is disturbing is the increase between 2010 and first half of 2011. Should this upward trend continue, it can add some pressure on the economy to reduce the debt level.

“However, if the policymakers were to institute policies for potential reduction in the debt level, the surge in the first half may not yield a strong adverse impact,” Dass said.

Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias, when contacted, said Malaysia's debt level used to be higher at around 75% of GDP in 1990.

Since then, it had been brought down to less than 50% by the mid-1990s.

He said only since the 1997 Asian financial crisis, the debt level had start ed to creep up; after the 2008 global financial crisis, it surpassed the 50% level again.

“What is more critical here is not the debt level per se whether on the absolute amount or as a percentage of GDP but the component of the debt.

“In Malaysia, only about 5% of the total federal government debt is foreign debt; the rest is domestic debt. This makes a whole lot of difference when it comes to the way sovereign risk is evaluated for a country,” Zahidi said.

Similarly, Japan also has minuscule foreign debt; its debt level was about 200% of GDP. Part of the reason why the Japanese economy has not collapsed is due to the fact that a bulk of its debt is financed via domestic sources.

“This is quite similar to Malaysia. It is true that the benchmark of 60% of GDP is always on investors' minds but one should not forget the component of the debt itself. Secondly, if the budget deficit can be brought down to less than 5% of GDP next year and keeps on sliding in the following years, there will be less pressure on Malaysia's debt level,” Zahidi said.