Malaysia’s debt-to-GDP ratio could stabilise at 65.5% this year

The outlook for the country’s fiscal policy is highly conditional upon the growth recovery this year 


MALAYSIA’S debt to GDP ratio could be reduced to 65.5% if debts are consolidated, says Moody’s Investors Service. 

Malaysia’s current household debt to GDP is at 89% as at December 2021 as compared to 89.6% in June 2021, according to Bank Negara Malaysia (BNM) in its Financial Stability Review for the second half of 2021 (2H21), released last month. 

In 2020 the nation’s household debt-to-GDP ratio had hit a record high of 93.2%. 

BNM stated the lower ratio as at end 2021 was mainly on the back of stronger nominal GDP growth, but added it remained on the higher end when compared [to] regional economies — Singapore (69.7%); Indonesia (17.2%); Philippines (9.9%). 

Moody’s assistant VP and analyst Nishad Majmudar said the outlook for Malaysia’s fiscal policy is highly conditional upon the growth recovery this year. 

“The weaker growth trajectory this year could result in some fiscal slippage and higher debt levels,” Nishad said at the Moody’s “Inside Asean: Malaysia” roundtable yesterday. 

He said the government’s fiscal flexibility could be limited if further revenue reforms were absent. 

“Given the government intends to retain high levels of expenditure to ensure economic recovery, we also assume there will be no major revenue reforms prior to the potential election next year,” he said. 

The analyst does not expect the government to introduce the goods and services tax or the Fiscal Responsibility Act legislation in 2022. 

He said the surge in inflation could be one of the biggest downside risks to Malaysia’s growth outlook for this year. 

“The potential surge in inflation will cause a negative emotion to react more quickly in terms of policy making realisation,” he noted. 

He assumed that BNM will start to take policy in the 2H22 due to the current labour market slack and core inflation. 

Nishad sees that the Covid-19 new variant could potentially risk Malaysia’s 2022 outlook as it will result in another round of border closures, social distancing measures and domestic restrictions. 

“But that is not our base case, given that the government has indicated its interest in keeping the economy open and treating Covid-19 as endemic,” he said. 

He added the Russia-Ukraine impact is likely neutral for Malaysia as the country has a diversified export base that will remain strong to support its growth. 

“Overall, we see the impact of the conflict as really neutral with the sovereign credit profile as it stands currently. 

“Of course, this has been a positive shock in terms of trade that will support exports and the balance of payments for Malaysia that were already in surplus,” he further said.