LAST_UPDATEFri, 22 Jun 2018 11pm

Moody's Confirms Malaysia's Govt Debt At RM687 Bil But Guan Eng Insist It's RM1 Trillion

Pic: TwitterPic: Twitter

According to a Moody's Investors Service report dated 13 June, the international ratings agency has maintained its estimate of Malaysia's direct government debt at 50.8% based on the 2017 gross domestic product (GDP).

The Moody's report titled Government of Malaysia: FAQ on credit implications of the new government's policies says its assessment of contingent liability risks in light of statements by the new government has not changed its position on Malaysia's government debt, The Edge Markets reports.

"The transition of power in Malaysia — following elections in May — away from the incumbent party that led the country for more than six decades has introduced some policy uncertainty,"  Moody's said that going forward, "to what extent the new government achieves fiscal deficit consolidation will be vital in gauging the eventual effects on Malaysia's fiscal metrics and credit profile".

50.8& translates to RM687 billion and not RM1 trillion as has been claimed by Finance Minister Lim Guan Eng recently.

Following the report's release, former prime minister Datuk Seri Najib Razak also highlighted the discrepancy in a comment posted on Facebook.

"Moody's have found those claims to be untrue and have maintained our debt ratio to be at 50.8% declared by the BN government previously.

"You can mislead the people but you cannot mislead the experts," Najib emphasized.

"The PH government must have the integrity to adhere to international standards and keep politics out when it comes to financial reporting," Najib added.

Guan Eng however quickly refuted Najib's claim, stressing that he was talking about the true extent of debt left by the previous Barisan Nasional government.

“I would reject former Prime Minister Datuk Seri Najib Razak’s claim that our debt level is not at RM1.087 trillion,” he claimed that his figure includes government guarantees when queried by reporters, Bernama reports.

"Why don’t you call a spade, a spade, as these are government guarantees which have become direct debts,” he added.

The impact of Guan Eng hiking the country's debt portfolio can be clearly seen in the nation's financial markets in recent weeks.

Foreigners have sold RM12.9 billion of Malaysian debt securites in May alone. Kenanga Investment Bank Bhd in a statement to NST said that the outflow slashed foreign holdings share in Malaysian debt securities to the lowest in eight years since June 2010 to 14.2 per cent against 15.2 per cent in April.

Filepic: NSTFilepic: NST

Najib in his Facebook posting also pointed out how Guan Eng's actions have lead to our financial markets dire straits at the moment.

"Over the past month, this RM1 trillion debt story has contributed to the large foreign funds out-flow from our bond markets and to the 25 consecutive days of net foreign selling of our share market - a situation that can only cause losses to retail investors as well as the savings and dividends of our funds such as KWSP, Tabung Haji and ASN/ASB," he said.

In addition, Moody's report concluded with a warning on what it terms as 'credit negative' events in Malaysia going forward.

"As for the impact of the new government's removal of the country's GST, Moody's says that in the absence of effective compensatory fiscal measures, this development is credit negative because it increases the government's reliance on oil-related revenue and narrows the tax base," Moody's goes on the estimaate revenue lost a 1.1% of Malaysia's projected GDP for this year, increasing to 1.7% beyond 2018.

"Moody's views the targeted reintroduction of fuel subsidies as credit negative because subsidies distort market-based pricing mechanisms, and could strain both the fiscal position and the balance of payments while raising the exposure of government revenue to oil price movements," Moody's said.

- mD