Author: Tan KW | Publish date: Thu, 9 Jun 2016, 01:09 PM
This article first appeared in The Edge Financial Daily, on June 9, 2016.
KUALA LUMPUR: Even if Malaysia’s public debt-to-GDP (gross domestic product) level exceeds 55%, sovereign credit downgrade is unlikely, according to MIDF Research.
In a note yesterday, the research house said despite the government being on track to reduce its debt level from 54.5% to 53% this year, one risk remains, and that is if the nominal GDP grows much slower or even contracts this year due to recession.
“Although we do not think that the nominal GDP will contract this year, as long as the government is able to keep its fiscal deficit at 3.1% to GDP, the total amount of Malaysian Governtment Securities (MGS), Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB) combined is still unlikely to breach the 55% debt ceiling level.
MIDF Research said too much attention had been given to the public debt-to-GDP level. The research house said the more important question was the sustainability of Malaysia’s fiscal position. It said Malaysia’s debt limit was set at 40% in April 2003, revised to 45% in June 2008, and subsequently 55% in July 2009.
“There was not even once when our sovereign credit rating was affected due to the increase in debt ceiling limit. We opine that the market and the public in general have been giving too much attention to the public debt-to-GDP level, without understanding the sustainability of the fiscal policy itself,” it said.
Further, MIDF Research argued that the public debt-to-GDP limit should only include MGS, GII and MITB.
http://www2.theedgemarkets.com/my/article/sovereign-credit-downgrade-malaysia-unlikely-says-midf-research-0
KUALA LUMPUR: Even if Malaysia’s public debt-to-GDP (gross domestic product) level exceeds 55%, sovereign credit downgrade is unlikely, according to MIDF Research.
In a note yesterday, the research house said despite the government being on track to reduce its debt level from 54.5% to 53% this year, one risk remains, and that is if the nominal GDP grows much slower or even contracts this year due to recession.
“Although we do not think that the nominal GDP will contract this year, as long as the government is able to keep its fiscal deficit at 3.1% to GDP, the total amount of Malaysian Governtment Securities (MGS), Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB) combined is still unlikely to breach the 55% debt ceiling level.
MIDF Research said too much attention had been given to the public debt-to-GDP level. The research house said the more important question was the sustainability of Malaysia’s fiscal position. It said Malaysia’s debt limit was set at 40% in April 2003, revised to 45% in June 2008, and subsequently 55% in July 2009.
“There was not even once when our sovereign credit rating was affected due to the increase in debt ceiling limit. We opine that the market and the public in general have been giving too much attention to the public debt-to-GDP level, without understanding the sustainability of the fiscal policy itself,” it said.
Further, MIDF Research argued that the public debt-to-GDP limit should only include MGS, GII and MITB.
http://www2.theedgemarkets.com/my/article/sovereign-credit-downgrade-malaysia-unlikely-says-midf-research-0
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