KUALA LUMPUR (March 31): Malaysia’s external debt increases to RM958.5 billion at the end of 2020 or 67.7% of GDP, from RM954.4 billion or 62.6% in 2019. The higher external debt primarily reflects the net issuance of bonds and notes by corporates and higher non-resident holdings of domestic debt securities. These were partially offset by lower interbank borrowings and non-resident deposits.
Bank Negara Malaysia (BNM) opined in its Economic Monitor Report 2020 that risks surrounding Malaysia’s external debt remained manageable in 2020 and well contained given its more favourable maturity and currency profiles, coupled with BNM’s prudential and hedging requirements.
In 2020, external debt-at-risk for corporates and banks amounted to RM26.4 billion and RM62.1 billion respectively. These cumulatively amounted to 9.2% of Malaysia’s total external debt and are equivalent to 20.5% of international reserves.
The central bank also reported that proceeds from the net issuance of international long-term bonds and notes in 2020 were channelled primarily to finance the acquisition of assets abroad that would generate future income streams.
“Some of these issuances also reflected prudent and strategic capital management efforts by corporates to refinance at lower rates while extending the debt maturity profiles, amid the highly accommodative global and monetary conditions. This partly contributed to the rising share of medium- to long-term external debt during the year (end-2020: 61.7% share of total external debt; 2019: 58.6% share), thus further reducing rollover risks,” BNM stated.
Slightly more than a third of external debt was denominated in ringgit in 2020 at 33.9% from 32.8% in 2019 and therefore was not affected by fluctuations in the local note’s exchange rate.
The remainder of the external debt that was denominated in foreign currency (FCY) was largely subject to prudential requirements on liquidity and funding risk management.
Intragroup borrowings among banks and corporates accounted for 42.3% of FCY external debt, which is generally more stable and on concessionary terms. Banks and corporates held FCY external assets amounting to RM1.4 trillion in total.
BNM’s international reserves in US dollar terms increased by US$4 billion to US$107.6 billion at the end of 2020, from US$103.6 billion in 2019, largely attributed to positive investment returns and revolution gains on its reserve assets amounting to US$10.3 billion in 2020.
This reserves position was sufficient to finance 8.5 months of retained imports and 1.2 times the short-term external debt. In 2020, the gross short position of FCY swaps declined to US$5.8 billion, from US$13.7 billion in 2019, which reflected the central bank’s operations to manage liquidity in the domestic financial system.
Read more stories from the BNM Annual Report 2020 here.