Malaysia's external debt higher at RM883.4b end-Dec but manageable

Breakdown of Foreign Currency-Denominated External Debt (% of Share)

KUALA LUMPUR: Malaysia's external debt rose to RM883.4bil (US$215.5bil) or 65.3% of GDP as at end-December 2017 from the preceding quarter due to an increase in loans, interbank borrowing and non-resident (NR) holdings of domestic debt securities, says Bank Negara Malaysia.

The Q4 debt increased from the RM873.8bil or US$204.7bil or 64.6% of GDP at the end-September of 2017.

Bank Negara said on Wednesday the higher external debt was partially offset by valuation effects following the strengthening of the ringgit against selected major and regional currencies during the fourth quarter.

“Malaysia’s external debt remains manageable given its currency and maturity profiles, as well as the availability of large external assets. More than one-third of total external debt is denominated in ringgit (34.3%), mainly in the form of NR holdings of domestic debt securities and in ringgit deposits in domestic banking institutions,” it said. 

Bank Negara pointed out these liabilities were not subjected to valuation changes from the fluctuations in the ringgit exchange rate.

It explained that the remaining external debt of RM580.7bil (65.7%) was in foreign currency (FC) and was subject to prudential liquidity management practices and hedging requirements on banking institutions and corporations. 

The bulk of these obligations are offshore borrowings, raised mainly to expand productive capacity and to better manage financial resources within corporate groups. 

“As at end-December 2017, the offshore borrowing remained low at 37.5% of GDP compared to 60.0% of GDP during the Asian Financial Crisis,” it said.

Bank Negara also said of the total FC-denominated external debt (inclusive of valuation effects), more than one-third (or RM211.6bil) was accounted by interbank borrowing and FC deposits in the domestic banking system. 

“Long-term bonds and notes issued offshore which amounted to RM154.2bil as at end-December 2017, primarily to finance asset acquisitions abroad that will generate future income,” it said.

It said from a maturity perspective, more than half of the total external debt is skewed towards medium- to long-term tenure (57.3% of total external debt), suggesting limited rollover risks. 

“Given the export earnings of borrowers and external assets, it is important to note that international reserves is not the only means for banks and corporations to meet their short-term external obligations. International reserves account for about a quarter of total external assets, with the remaining external assets being held by banks and corporations.

As at Jan 30, 2018, international reserves were  1.1 times the short-term external debt and was sufficient to finance 7.2 months of retained imports.