Malaysia is stable and is not at risk of going bankrupt like Sri Lanka, Finance Minister Zafrul Aziz said, citing the International Monetary Fund’s prediction for the economy to expand 5.75% this year as reason for confidence.
“The IMF has never said that Malaysia is facing economic troubles that could bankrupt the country,” he said in parliament on Tuesday when asked to clarify social media reports that the neighbouring country is set to meet Sri Lanka’s fate. “If we compare our economic indicators with Sri Lanka, it is clear our economy is far more stable than theirs.”
Still, the government must continue to manage the country’s finances prudently and control the level of debt, he said.
A Bloomberg gauge of one-year default probability showed Malaysia at 2.43% compared to Sri Lanka’s 19.4%, with a reading above 1.5% signifying high risk of failure to pay. The Southeast Asian nation, whose budget is strained by inflation-relief efforts, is expected to fork out a record 77.3 billion ringgit ($17.6 billion) in total subsidies this year, with concessions on fuels and cooking gas alone projected to touch 37.3 billion ringgit, Zafrul said last month.
The jump in palm oil and crude oil prices this year is expected to generate tax revenue of 10 billion ringgit for the country, Zafrul said Tuesday, adding that the government will also garner an additional 10 billion ringgit from income and indirect taxes as the economic growth is expected to be stronger in the second quarter of this year.
Even so, higher revenues would be insufficient to cover the surge in government subsidies, he said.
Malaysia’s ability to fund the concessions by taking on more debt is limited, Zafrul said, responding to a query on whether there was still room to borrow. The country’s ratio of debt service payments to revenue was 16.3% in 2021, and based on Budget 2022, the proportion is expected to exceed 18%, he said.
“This means that for every 1 ringgit of government revenue, almost 20 sen is used for paying interest on debts, and this is apart from the ability to repay the principal amounts on loans taken by the government,” he said.
