Thursday, March 12, 2015

Malaysia's RM 744.7b external debt

I have not read what the Ministry of Finance prepared for the Prime Minister in Parliament. But media outlets, both print and online media, went out with headlines like "Malaysia's external debt tripled to RM740 billion".

I won’t blame the media here and I must say this - Treasury should be more politically sensitive in future.

The statement gave naughty ideas to poster boys like Suara Rakyat to go all out by pushing content such as “Hutang Negara RM744.7 billion - Hutang negara di era pemerintahan PM Najib Razak!”

Some even went as far as saying that the Government was hiding numbers and massaging statistics in the past few years.

In actual fact, it was in 2013 when the International Monetary Fund (IMF) proposed a wider coverage for external debt. The international standards was prescribed to all member countries to comply with. This redefinition of external debt was to include several more items that were not covered before.

External debt now takes into account the non-resident holdings of local-currency denominated debt, deposits, loans, liabilities etc irrespective of the currency denomination of the debt.


External debt by maturity and instruments
Old definition
New definition
Inter-bank borrowing in foreign currencies
Maintain
Inter-company borrowing in foreign currencies
Maintain
Bonds issued abroad
Maintain
Other loans in foreign currencies
Maintain
Trade credits
-
NEW
Non resident holdings of domestic money market instruments
-
NEW
Non resident holding of domestic bonds
-
NEW
Current and deposits
-
NEW
Other liabilities by non resident
-
NEW
Source: BNM Q1 Bulletin - Economic and Financial Developments in the Malaysian Economy

In Q1 2014, BNM adopted this new definition of external debt and the first redefined external debt number was published. That was one year ago! So before anyone gets excited, please don't. Sudah basi, old news!

BNM’s Q1 2014 bulletin reported that our country's external debt (both private and public) was RM700.1 billion and the higher external debt was attributed largely to higher offshore borrowings by the private sector and non-resident holdings of ringgit denominated debt securities.

It is related to the company that many of you work with, it is related to the Mat Salleh in your company HQ with an account here, it is related to your Japanese banker whom your company owe money to.

If anyone actually bothered to dig further by clicking and opening BNM's External Debt report on their website, you will notice that

Federal Government debt - medium and long term offshore borrowings - have remained stable and low. It was RM13.8 bil in 2009 and for the financial year ending 2014, it only increased marginally to RM16.8 bil.

-  In terms of ringgit denominated Government securities held by non-residents, it currently stands at RM151.4 bil.

If you add both up, the total debt exposure of Federal Government 'externally' is just RM168.2 bil (22.6 percent of total external debt).

The balance here which is RM744.7 bil - RM168.2 bil = RM576.5 bil, this is not Government's debt at all. These belong to the private sector, the banking sector, and others such as deposits held by non-residents.

To pin the whole country's external debt on Najib is unfair.

It is clear to many that debt is not necessarily a bad thing as long as you have growth. You borrow to grow your wealth through strategic investments, just like how we borrow money to buy properties.
As long as Najib and Zeti sets the right policies for sustainable economic growth and solid fundamentals in our financial systems, debt and debt repayment should not be a concern.

By the way, there are easily 30 countries, if not more, with external debt higher than us such as South Korea (Q3 2014: USD65.8 bil, General Government) and Japan (Q3 2014: USD926 bil, General Government).

But of course, it is too late now for anyone to reach out to the masses who don’t understand the national accounting and economic terms. Damage has been done. Ini semua salah Najib, kan?

This is perhaps the most disastrous year in terms of communications for the Government.

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