Financing the country’s external debt

DEBT management strategies have proved to be vital in today’s climate.

The federal government’s borrowing programme is needed to finance the fiscal deficit and refinance maturing debt.

According to Bank Negara in its Economic Outlook 2024 Report, total gross borrowings for 2023 are estimated to be at RM228.5bil with RM93.2bil for deficit financing, and RM135.3bil for principal repayments.

“The principal repayments consists of Maturing Malaysian Government Securities (MGS) at RM38.3bil, Malaysian Government Investment Issues (MGII) at RM39bil, treasury bills at RM54bil, government housing sukuk at RM3.6bil and offshore borrowings at RM0.3bil,” the report said.

As at the end of August 2023, the government had raised RM166.5bil through 26 issuances from both MGS and MGII.

It also raised RM37bil through 16 issuances of treasury bills. The fundraising activities this year were conducted mainly through auctions followed by private placements.The government offers a wide range of instruments with maturities ranging from three months to 30 years to help smoothen debt maturity profiles while meeting investors demands.

Other factors also play a role fiscally, for example when the US Federal Reserve raised its Federal Fund Rates by a cumulative 525 basis points to the range of 5.25% and 5.5%, recording the highest level in two decades.

Bank Negara’s Monetary Policy Committee then increased the overnight policy rate by 125 basis points from 1.75% to 3%.

Meanwhile, the report said Malaysia’s external debt increased by 6% to RM1.21 trillion at the end of June 2023 on the back of high offshore borrowings, non-resident holdings of ringgit-denominated debt securities and non-resident deposits.

“Overall it remained manageable given its favourable maturity, with medium and long-term debt constituting a higher share at 58.2% compared to short-term debt at 41.8%,” the report noted.

Additionally, Malaysia’s public sector debt at the end of June 2023 had also increased 4% to RM1.54 trillion on the account of higher federal government debt, which constituted 74.3% of total debt.

Moving forward, in line with the Madani Economy framework, the government will aim to restructure and rebuild the country’s fiscal resilience and capacity.

“The government has also committed to prudent debt management to reduce debt and liabilities exposure, as well as realising the need for a robust financing strategy,” the report said.

Hence, its gross borrowings are estimated to be lower at 10% of gross domestic product (GDP), while efforts will be focused on ensuring a well spread debt maturity profile by reducing the issuance of short term instruments and managing refinancing risks.

On the other hand, the federal government debt is projected to be around 64% of GDP at the end of next year, mainly from financing development projects as well as the National Fiberisation and Connectivity Plan.