KUALA LUMPUR, June 8 — Debt-ridden 1 Malaysia Development Bhd (1MDB) does not pose a systemic risk to Malaysia’s economy despite being wholly owned by the government, a federal minister insisted today.

Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar added that Putrajaya’s implementation of the Goods and Services Tax (GST) in April has made the government’s finances more robust to withstand any related fallout.

“On other factors, I think with 1MDB there have been many statements made before that it’s not systemic, but our government’s fiscal position after broadening of its revenue base is flexible (enough) to sustain any implication from that,” he said.

The minister was delivering his keynote address of the “An Update on the 11th Malaysia Plan - Addressing Current and Future Challenges” forum.

Wahid added that Malaysia’s financial sector is well-regulated by Bank Negara Malaysia, enabling it to handle any shocks such as the concerns over 1MDB’s financial health.

“A systemic risk refers to whether or not it will have any effect on the pressure system, on the government finances, but I think given the stability of the financial system, banks are very well capitalised, they’re well-managed,

“As you know, the financial system is very, very well regulated by the central bank and as a former banker I can attest to that,” he added.

This comes after Moody’s Investors Service said on May 27 that the debt-laden 1MDB will not affect its credit rating for Malaysia as the state-owned fund currently does not pose risks to the country’s financial systems.

PKR vice-president Rafizi Ramli said on May 13, however, that Malaysia’s financial system will be jeopardised if 1MDB defaults on its RM42 billion loan should the state investment firm fail to repay RM3.6 billion of the debt to German banks demanding repayment ahead of schedule.

The firm today announced that it has paid off the loan in question.

1MDB is currently under investigation by at least three federal agencies including the Auditor-General, the Public Accounts Committee and Bank Negara Malaysia.

1MDB was incorporated in 2009, after the prime minister announced the decision to turn the Terengganu Investment Authority state fund into a federal agency.

Since then, 1MDB has been dogged by negative publicity over its finances and debt, and most recently cash flow problems that saw it struggle to meet a RM2 billion loan payment.