M'sia GDP forecast to grow amid debt concerns
A new debt threat in the form of 1MDB, which recently recorded a loss of RM665m, may be emerging
Kuala Lumpur
WHILE prospects for Malaysia's economic growth this year and the next remain strong, concerns about its stubbornly high government and household debt levels continue to cast a pall over its performance.
On Monday, at least two economic research houses predicted that the country's real gross domestic product (GDP) would record between 5.8 per cent and 6 per cent in 2014 from 4.7 per cent last year and remain slightly over 5 per cent in 2015.
Hwang-DBS Investment Bank maintained its growth forecast of 5.8 per cent this year while Hong Leong Investment Bank expressed a slightly more bullish forecast of 6 per cent. Both said growth would come about through unflagging domestic demand and a recovery in exports thanks to economic recovery in the United States.
For all the South-east Asian country's strong fundamentals, however, the three international rating agencies have expressed concerns about its debt levels. None except Fitch Ratings, however, has downgraded the country's sovereign.
In July 2012, Fitch maintained Malaysia's sovereign at A- but downgraded its "outlook" from "stable" to "negative", a position it has maintained ever since due to what it said were concerns over the country's public finances.
Malaysia has run a budget deficit since 1998 but has pruned it back from its height of nearly 8 per cent of GDP to a projected 3.5 per cent by the end of the year. Its share of federal government debt to GDP is 53 per cent, a level that's surpassed only by India and Sri Lanka, outside of Japan.
Meanwhile, its share of household debt to GDP, at 86 per cent, is the highest in Asia. But its loans impairment ratio is low and mostly concentrated among mortgages.
Having said that, a new debt threat in the shape of sovereign wealth fund 1MDB (1Malaysia Development Berhad), an entity that's been dogged by controversy since its inception in 2009, may be emerging.
IMDB recently recorded a loss of RM665 million (S$257 million) for the year to March 31, 2014. Such is the alarm being generated by the fund that even former premier Mahathir Mohamad felt compelled recently to question its RM38 billion in debt that it had racked up in five years.
None of the rating agencies has so far flagged 1MDB as a serious concern but they all have begun to mention it. And it's telling that Bank of America Merrill Lynch economist Chua Hak Bin now routinely flags its performance in his regular economic reports on the country.
For all that, however, there is no indication that the economy is in peril. Even including off-balance sheet items and contingent liabilities, Malaysia's total debt hovers around 70 per cent of GDP, far below the initial warning siren of 85 per cent.
Meanwhile, the country's international reserves are over US$138 billion, a figure that all three rating agencies agree is healthy. According to Hwang-DBS, Malaysia's exports of goods and services in real terms are expected to recover to 5 per cent in 2014 and maintain that level in 2015.
Fears of a repeat of the current-account deficit that occurred during the 1997-98 Asian financial crisis have abated. But the surplus may have undergone a structural decline from over 13 per cent of GDP between 2002 and 2010 to between 3 and 5 per cent of GDP currently.
