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Malaysia’s debt structure, external assets can buffer external shocks

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KUALA LUMPUR, March 8 2018 : Malaysia’s debt structure and external assets have enhanced its resilience against external shocks and exchange rate movements, the International Monetary Fund (IMF) said.

“Our authorities welcome staff’s assessment that Malaysia’s external debt remains manageable under a variety of shocks,” it said today.

Malaysia’s external debt stood at RM873.8 billion or US$204.7 billion as at end-September 2017, equivalent to 65 per cent of Gross Domestic Product (GDP) (2016: RM916.9 billion or US$202.3 billion; 74.5 per cent of GDP).

Malaysia’s external debt is supported by a favourable debt structure with about 34 per cent of external debt denominated in ringgit.

The remaining external debt denominated in foreign currency are mostly held by banking institutions, which are subject to the central bank’s prudential management, it said in the staff report, which was prepared by a staff team of the IMF for the Executive Board’s consideration on Feb 9, 2018, following discussions that ended on Dec 8, 2017, with the officials of Malaysia on economic developments and policies.

The staff report was completed on Jan 24, 2018.

The staff’s assessment on Malaysia’s higher external financing vulnerabilities relative to peer median does not sufficiently take into account Malaysia’s degree of openness and financial market depth.

For instance, Malaysia has the second largest local-currency denominated bond market in Asia (relative to GDP, excluding Japan), with active non-resident participation.

The banking sector’s external exposures are also in line with centralised liquidity management practices of domestic banks with large regional footprint and strong presence of locally-incorporated foreign banks. Importantly, any assessment should also consider Malaysia’s external assets.

Malaysia’s external assets are predominantly denominated in foreign currency (95 per cent share), while a significant share of Malaysia’s liabilities are in domestic currency (59.5 per cent).

Non-Foreign Direct Investment (FDI) foreign-currency assets exceed foreign-currency liabilities.

Hence, the potential claim on international reserves from non-FDI liabilities would be limited, it said. – Bernama

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