Foreign borrowings not needed for Prihatin

Govt sees no reason to tap foreign borrowings given the current liquidity of the ringgit


THE government would not consider foreign borrowings to fund the Prihatin Rakyat Economic Stimulus Package (Prihatin) and the short-term National Economic Recovery Plan (Penjana) as there is ample liquidity in the market.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the government is only considering domestic borrowings of up RM35 billion.

“We are looking at local borrowings by tapping into the local bond market via the Malaysian Government Securities and Malaysian Government Investment Issues,” he told reporters after his first official visit to the Employees Provident Fund’s (EPF) office last Friday.

Tengku Zafrul said the government is looking at raising RM35 billion in borrowings to finance the higher deficit brought about by the fiscal injections due to the challenges brought by the Covid-19 pandemic.

“The local market is deep enough for the government to raise funds. In total, our fiscal injection amounted to about RM45 billion and we have to borrow probably around RM35 billion.

“We have enough to tap the market and borrowing today is also cheaper with Bank Negara Malaysia reducing the Overnight Policy Rate by 50 basis points, so we can tap the market,” he added.

To put things into perspective, both the Prihatin and Penjana packages are worth RM295 billion with RM45 billion in the form of direct fiscal injection.

The minister also said the government sees no reason to tap foreign borrowings given the current liquidity of the ringgit.

This is despite the administration still have the room to raise foreign borrowings given its current exposure of around RM30 billion versus its limit of RM35 billion. Tengku Zafrul explained the total debt to GDP currently stands at 52%, which is still below the statutory limit of 55%.

“If Malaysia needs to raise the statutory limit of debt-to-GDP ratio of 55%, given the unprecedented and challenging times, it has been temporarily, with a focus of lowering it back soon, three years should be ideal,” he added.

He added that Malaysia could afford the expected deficit that is projected to be about between 5.8% and 6% this year, given that the country has a good track record in bringing it down from 6.7% in 2009 during the financial crisis to about 3% within five years.

Notably, the expected deficit for 2020 took into account the oil price that was at US$30 (RM128.10) per barrel for Brent crude oil prices and the execution of the government’s stimulus and short-term recovery plans.

“Given the efficient execution of the stimulus packages, the government is expecting a contribution to GDP of 2.8% from Prihatin and 0.6% from Penjana,” he added.

Separately, Tengku Zafrul said the government would not get involved in any bailout of airline operators despite being badly affected by the pandemic as their business is run commercially.

“The Ministry of Finance (MoF) does not get involved in any bailout to help aviation companies but we will help the industry,” he said, refuting claims that Khazanah Nasional Bhd is considering injecting fresh capital of up to RM5 billion into Malaysia Airlines Bhd (MAB).

He claims the sovereign wealth fund’s board of directors did not hear from MAB in regard to the capital injection of RM5 billion as reported by Bloomberg.

“This is the first time I heard about the report. I do not comment on speculation but honestly, I never heard of that from the board or Khazanah MD that they will put money for Malaysia Airlines.

“But if they do, it is up to the company. As far as I know, MoF has not provided any allocation for Malaysia Airlines,” he commented as one of the members of the sovereign wealth fund board.

Commenting on EPF, Tengku Zafrul said as of the end of 2019, EPF had approximately RM924.75 billion in assets.

“Presently EPF has 14.6 million members and 7.6 million active contributors. The fund has done well in managing its assets throughout,” he said.