MARC: Promising prospects for debt-level reduction

KUALA LUMPUR: Malaysia is on track to enhance its fiscal health, with promising prospects for reducing debt levels, according to Malaysian Rating Corp Bhd (MARC)

The rating agency said that under the debt sustainability analysis framework developed by the Ministry of Finance, the International Monetary Fund, and the World Bank, Malaysia’s debt level could improve to below 60% of gross domestic product (GDP) by 2028 (2023: 64.3%).The projection is based on a baseline scenario of an average GDP growth of 4.5% and funding cost with a 4.2% average coupon rate.

“While risks surrounding external growth and financing conditions have decreased, continued adherence to debt-stabilising policy measures is required to achieve a stronger and more sustainable fiscal position,” it said in a statement yesterday.

MARC said that effective debt management is crucial, particularly in view of the higher short-term debts issued since 2020 for pandemic spending.

“Short-term papers (less than three years) as a share of gross borrowings rose to 18.9% during the 2020 to 2023 period compared with 6.2% in the 2015to 2019 period.

“Conversely, we note the weighted average time to maturity for outstanding debt securities has increased to 9.5 years in 2023 (2022: 9.0 years) due to a longer average time to maturity for 2023 issuances at 10.3 years (2022: 9.3 years),” it said.

MARC said that as of mid-2024, about two-thirds of Malaysia’s debt will mature within the next 10 years, showing a balanced maturity schedule.

“However, there is room to better distribute the debt maturities, especially towards bonds with maturities of 20 years or more, to improve the management of refinancing exposures,” it added. — Bernama