Malaysia's debt burden eases as loans shifted to mortgage agency

[KUALA LUMPUR] Malaysia moved about US$5.4 billion of government debt into a statutory agency set up to finance civil servants' mortgages, reducing borrowings as a percentage of gross domestic product.

The debt-to-GDP ratio will be cut by about two percentage points from 54.5 per cent at the end of 2015 after loans were transferred to the Public Sector Home Financing Board from the finance ministry, Treasury Secretary General Mohd Irwan Serigar Abdullah said on Friday. Malaysia has a self-imposed debt ceiling of 55 per cent.

Prime Minister Najib Razak is reining in government spending to narrow a fiscal deficit the country has been running since 1998 and avert a credit-rating downgrade. Malaysia's finances have been weighed down by a decline in oil revenue, while the government has said it faces potential liabilities should state investment company 1Malaysia Development Bhd default on debt that it backs. The agency has established a RM25 billion (S$8.33 billion) bond programme consisting of Islamic and conventional notes, and is guaranteed by the government.

"This will relieve the financial burden of the government," Mr Irwan told reporters in Kuala Lumpur. The move will add a "small percentage" to contingent liabilities that are at about RM170 billion, Mr Irwan said, without elaborating.

The Public Sector Home Financing Board was set up in January to manage the provision of housing loans to civil servants. The agency will tap the market for borrowings directly in future, a role previously played by the finance ministry. It plans to sell the first tranche of bonds in coming weeks depending on market conditions and is looking at issuing up to US$2.45 billion of debt this year, chief financial officer Mohd Zawawi Mohd Muhiddin said on Friday.

BLOOMBERG