THE headline number screams of a problem but the underlying position in Malaysia’s external debt seems to indicate there is no such trouble.
The surplus in the country’s international investment position makes Malaysia a creditor nation, with the bulk of the external assets owned by corporations and banks.
“The availability of these external assets better enable these entities to meet the external obligations without necessarily creating a claim on international reserves,” according to Bank Negara’s annual report.
It says that at end-2016, Malaysia recorded a net short-term external surplus of RM327.3bil, and increase of RM45.2bil from the end of 2015.
Bank Negara in its annual report notes that Malaysia’s external debt grew by 9% to RM908.7bil last year. The increase was 9% from 2015 but after stripping out the ringgit’s weakening against major currencies, the rise was 6.2% and largely due to higher intercompany and interbank borrowings.
The central bank says Malaysia’s external debt remains manageable given its currency, maturity and balance sheet profiles. More than a third of the debt is in ringgit, mainly held by non-residents in the form of securities and bank deposits.
Total debt securities by non-residents rose 1.4% last year and ringgit deposits held by foreigners jumped 14.3%.
“While the remaining portion of total external debt of RM597.3bil (65.6%) is denominated in foreign currency, most of it is hedged, either naturally using foreign currency earnings or through the use of financial instruments.
“Most of these obligations are offshore borrowings, raised mainly to further expand productive capacity and to better manage financial resources within corporate groups,” it says.
The central bank says around a third of total foreign currency-denominated external debt is interbank borrowing and foreign currency deposits in the domestic banking system.
From its maturity perspective, Bank Negara says more than half of external debt is skewed towards medium- to long-term tenures, suggesting limited rollover risks. “Also, not all short-term external debt pose a claim on reserves, given the export earnings of borrowers and external assets,” it says.