Socio-Economic Research Centre executive director Lee Heng Guie pointed out that Malaysia’s current debt-service ratio is at 18.4%, significantly higher than the 15% limit.
“We do not see this as something that’s alarming as the country opens itself up to higher levels of economic activity, but it does warrant caution,” he said.
Malaysia’s unemployment rate stood at 3.9% in April compared to 4.1% in March and is fast approaching the pre-pandemic rate of 3.3% experienced in February 2020, which corroborates Lee’s point that Malaysia’s economic activity is picking up, thus improving job market conditions.
The government has projected that the economy will grow between 5.5% and 6.5% in 2022, similar to the International Monetary Fund and World Bank’s projections of 5.7% and 5.8%, respectively.
For 1Q22, Bank Negara Malaysia (BNM) revealed that the country’s GDP grew 5% principally spurred by private consumption (up 5.5%), exports of goods and services (up 8%), services (up 6.5%) and manufacturing (up 6.6%).
Despite his bright outlook Lee did allude to the fact that Malaysia needs to tread cautiously when managing fiscal aspects of the economy, in particular revenue collection that could likely see the return of the Goods and Services Tax.
“Our statutory borrowings are currently at RM29.2 billion, which is quite close to our limit of RM35 billion and will not leave much room for any future crises,” Lee said.
Sunway University economics professor Yeah Kim Leng said it would only become worrisome if Malaysia’s debt-service ratio exceeded the 20% threshold and was denominated in foreign currency.
In that event, it would severely constrain and hamper the country’s ability to provide support for low-income groups, general social security and to mitigate or address any future crises.
“Thankfully, 97.5% of Malaysia’s debt is denominated in ringgit and that makes it much less volatile as well as easier for the government to service,” said Yeah.
BNM’s decision to raise the overnight policy rate by 25 basis points to 2.0% during the Monetary Policy Committee meeting in May shows the central bank’s confidence in Malaysia’s improving economic performance for 2022, he added.