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Malaysia not at risk of financial collapse like Sri Lanka, says finance minister

Malaysia not at risk of financial collapse like Sri Lanka, says finance minister
Malaysian Finance Minister Tengku Zafrul Tengku Abdul Aziz responded to claims that the country could end up in financial ruin like Sri Lanka as a result of government debt. (File photo: Bernama)

KUALA LUMPUR: Finance Minister Tengku Zafrul Tengku Abdul Aziz said in parliament on Tuesday (Jul 19) that the possibility of Malaysia going bankrupt like Sri Lanka is very slim. 

Responding to a question by Pontian lawmaker Ahmad Maslan, the minister noted that the International Monetary Fund (IMF) has never reported that Malaysia was facing problems that would result in bankruptcy.

Instead, the IMF had expressed confidence in Malaysia's economic growth prospects, he said.

"In late April this year, the IMF expressed its confidence that our gross domestic product (GDP) will grow at a rate of 5.75 per cent.

"If we compare our economic indicators to Sri Lanka, it is clear that our economy is far stronger than theirs,” the minister was quoted as saying by New Straits Times.

"Therefore, the possibility of Malaysia going bankrupt like Sri Lanka is very low."

Mr Ahmad had asked the finance minister to clarify claims on social media that Malaysia could end up in financial ruin like Sri Lanka as a result of government debts.

As at the end of June, Malaysia’s offshore loans amounted to RM29.4 billion (US$6.6 billion) while statutory debt accounted for more than 60 per cent of GDP.

Last week, Tengku Zafrul issued a statement stating that Malaysia’s fiscal position is still strong and the federal government’s debt is still under control.

He said the government remains highly disciplined and has never failed to pay interest and mature debts despite having gone through a series of economic and financial recession crises.

“This proves Malaysia's reputation and ability as a debtor with a good repayment record,” he said, according to Bernama.

“The Ministry of Finance has lodged a formal complaint with the Malaysian Communications and Multimedia Commission on several false reports on social media on the country’s debt position which apparently are aimed at misleading the people and potentially undermining investor confidence in Malaysia,” he added.

On Tuesday, Tengku Zafrul said in parliament that Putrajaya’s ability to increase its national debt is limited compared to other developed countries with much lower debt service ratios. 

“Our debt service ratio in 2021 was 16.3 per cent and based on the budget this year, this is expected to be more than 18 per cent this year,” the finance minister said. 

“This means for every RM1 income the government receives, close to 20 sen is used to pay interest only and this does not take into account the ability to pay loan principal. Therefore, our ability to increase our debt level is limited compared to other countries.”

Tengku Zafrul added that the debt service ratio for developed countries like the United Kingdom is 6.6 per cent, the United States 5.2 per cent and Japan 4 per cent.

The minister also said Malaysia’s tax-to-GDP ratio is about 11 per cent, lower than the Philippines’ 18 per cent, Thailand’s 17 per cent and Singapore’s 13 per cent. 

The Organization for Economic Cooperation and Development (OECD) countries have an average of more than 33 per cent of tax-to-GDP ratio, he said. 

“This means that although our country's economy is getting better in 2022, the economic growth did not generate the additional revenue necessary for us to take on more debt,” he said.
 

Source: Agencies/aw(tx)
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