KUALA LUMPUR: Prime Minister Datuk Seri Najib Razak said he believes that Malaysia can avoid a cut to its credit rating while the government will try its “level best” to prevent a breach of its selfimposed sovereign debt ceiling.
“We will manage it,” he said in an October 11 interview in Putrajaya. “We’re very closely monitoring how we manage our macro position as well as our fiscal and debt to make sure that we will not be downgraded.”
Najib raised subsidised fuel prices for the first time since 2010 and said he’d delay some public projects after Fitch Ratings cut Malaysia’s credit outlook to negative in July, citing rising debt levels and a lack of budgetary reform. The country, which has a long-term foreign-currency denominated
rating of “A-” at Fitch, has run annual budget deficits every year starting in 1998.
At 53.3 per cent, Malaysia’s debt-to-gross domestic product ratio is the highest among 12 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg.
Moody’s Investors Service said last month the budget gap may exceed the prime minister’s target of four per cent of gross domestic product (GDP) this year and warned fiscal targets will
become “increasingly out of reach” unless further measures are taken. Moody’s rates Malaysia government bonds “A3” with a stable outlook.
The government will further cut state subsidies, broaden its tax base and manage spending “prudently,” said Najib, who is also finance minister, without elaborating.
Cabinet will meet before the 2014 Budget is released on October 25 to decide if there’s enough public support to introduce a goods and services (GST) tax, he said.
“We are quite positive on Malaysia,” Enrico Tanuwidjaja, a Singapore-based economist at Nomura Holdings Inc, said by phone on October 10. “They are on a fiscal consolidation path and they will boost the revenue base if the government can push through the GST in the coming budget.
A sub-three per cent fiscal deficit could happen in 2016, if not in 2015 as per the official aim.”
The ringgit has fallen four per cent this year, the fifth worst performer among 11 most-traded Asian currencies tracked by Bloomberg. The currency could gain over time if Malaysia’s fundamentals remain strong, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said in an October 12 interview with Bloomberg News in Washington.
The government earlier planned to introduce a four per cent GST by 2011. It hasn’t said what the rate may be if it now goes ahead.
“We are one of the very, very few countries in the world which doesn’t have a GST,” said Najib, who was returned to power in a general election in May. “But there are challenges. Anything to do with any new form of tax, like consumption tax in Japan, carbon tax in Australia, these are big issues that cannot be easily decided.”
The government will "try our level best" not to go beyond its debt ceiling of 55 per cent of GDP, said Najib.
If Malaysia can achieve five to six per cent GDP growth, "we should be able to manage the debt ceiling", he said.
"This year we should be able to get somewhere between four to five per cent" growth, Najib said. "I think probably slightly beyond 4.5 per cent. That's the best estimate that we have currently."
With state guarantees added to public debt the government's credit exposure was 70.2 per cent of GDP as of the end of the second quarter, up from 66.6 per cent a year earlier, Bank of America Corp said in a report on September 17.
"It's not so much the level of debt, it's the ability to pay," he said. "Fortunately, most of our debts are long-term debts and are domestic debts, so we think we will be able to manage it."
1Malaysia Development Bhd, a sovereign wealth fund better known as 1MDB, has accumulated total bonds and outstanding loans of about RM30 billion since it was formed four years ago, according to data compiled by Bloomberg.
The fund has acquired RM12 billion of energy assets in the last two years. It is also building a new financial district in the capital called Tun Razak Exchange, named after Najib's late father, Malaysia's second prime minister.
"It has borrowings, but its total assets exceed its borrowings," Najib said of 1MDB. "We've got a few projects and programmes in mind that will really strengthen 1MDB."
The fund is talking to potential United States investors about venturing into solar energy, said the prime minister, who is chairman of the fund's advisory board.
1MDB came under scrutiny in Parliament in July after hiring Goldman Sachs Inc to help manage US$6.5 billion (RM21 billion) of bond sales to fund expansion. The US bank made about US$500 million in commissions and trading gains, a person familiar with the matter said on May 9.
"If you talk in terms of international scale of fees, I think that's within a margin," said Najib. "Goldman Sachs have got certain ability and name in the market and they are able to deliver what's been required. In terms of that relationship, 1MDB is quite happy with what Goldman Sachs has done." Bloomberg