Effective strategies for debt management


THE Federal Government’s debt level trajectory is forecast to remain within the statutory debt limit in the medium-term due to the scarring effect of additional borrowing during the Covid-19 pandemic and the funding requirements for the implementation of the 12th Malaysia Plan.

“Therefore, the current debt limit will be maintained to provide fiscal space in executing the nation’s development agenda, strengthening the economy and ensuring sustainable recovery.

“Concurrently, the government is also exploring the feasibility of a single debt limit as one of the fiscal rules,” said the Fiscal Outlook 2023 report.

According to the report, the government aims to gradually reduce the Federal Government’s debt-to-gross domestic product (GDP) ratio to provide the country with fiscal headroom in order to manage potential crises in the future.

The lowering of the debt burden can be realised through fiscal reforms accompanied by improved revenue collection post-crisis and expenditure rationalisation.

The pace of economic momentum remains positive and is expected to grow between 6.5% and 7% in 2022, which will expedite the debt level trajectory towards a downward path, it added.

Being a small and open economy, Malaysia is not fully insulated from current global developments, particularly high commodity and food prices.

“Thus, the government provides additional fiscal support to mitigate the impact of the rising prices on the rakyat.

“Consequently, the borrowing requirements for the year are projected to be slightly higher than budgeted as the additional revenue collection is insufficient to absorb the increase in expenditure,” the report said.

It added that effective debt management strategies have been put in place, among others to raise the borrowings domestically, lengthen the tenure of issuances and introduce a new sustainability instrument.

The tightening of monetary policy has not significantly impacted the government’s borrowing costs as the overnight policy rate is still below pre-pandemic level.

In 2022, the total gross borrowings are projected to reach RM232bil or 13.5% of GDP and financed entirely from the domestic market.

Of the total proceeds, RM132.3bil will be utilised for principal, while the remaining RM99.5bil will be used for deficit financing.

The availability of ample liquidity in the domestic market enabled the government to raise its borrowings and manage the cash flow requirements via its ringgit-denominated instruments.

The issuance of Malaysian Government Securities is expected to record RM86.5bil or 37.3% of total gross borrowings.

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