KUALA LUMPUR, April 11 — 1Malaysia Development Bhd’s (1MDB) debt remained a risk factor in Malaysia, one that also revealed shortcomings with the country’s institutions, according to fund managers and investors polled in a Moody’s survey.
According to the “Inside Asean: A view from Malaysia” report released today, 47 per cent of respondents expressed concern over structural issues facing the local economy while 27 per cent cited high corporate debt levels.
“While we have not viewed debt distress at 1Malaysia Development Berhad (1MDB unrated), the government-owned strategic development fund, as a systemic risk, the episode has contributed to rising political risk and exposed weaknesses in Malaysia’s institutional framework,” Moody’s said in the report.
“Malaysia ranks in the top third of countries — among sovereigns that we rate — for government effectiveness, based on the World Bank’s latest Worldwide Governance Indicators (WGI). However, concerns surrounding financial distress at 1Malaysia Development Berhad, a government-owned strategic development company, point to a weaker institutional framework than implied by its relatively strong showing in the WGI.”
But the report said that Malaysia’s long-term outlook was still favourable, citing the country’s infrastructure network, resources and industry that could benefit from new trade links.
It also highlighted the government’s 11th Malaysia Plan that placed a focus on increasing private sector participation, adding that the shift away from primary economic activities could help Malaysia achieve its targeted growth.
Respondents believed, however, that the country’s economic growth would ease in 2016, following the unexpectedly strong showing last year.
Over half the respondents felt economic growth would be between 4.0 and 4.5 per cent, although the projection was in line with Bank Negara Malaysia’s forecast for the country’s expansion.
“Given the open nature of its economy (exports and imports combined account for 131 per cent of GDP), Malaysia is susceptible to a prolonged period of subdued global demand and weaker commodity prices via the export channel, weaker investment demand and downward pressure on government receipts.
“Meanwhile, a high household debt burden, equivalent to 89.1 per cent of GDP in 2015, will constrain the ability of private consumption to support domestic demand,” Moody’s said.
Forty per cent of respondents cited concern about Malaysia’s household debt in the survey, noting local banks’ heightened exposure to risk of delinquency over the next 12 months.
The Moody’s report was prepared based on real-time polling of 110 participants during the firm’s annual “Inside Asean — Spotlight on Malaysia” briefing in Kuala Lumpur last month.
In March last year, Prime Minister Datuk Seri Najib Razak ordered the Public Accounts Committee and the Auditor-General to investigate 1MDB over allegations of financial mismanagement.
The PAC released its much-anticipated final report on the state investment arm last week after almost a year of proceedings, and the questioning of dozens of government and 1MDB officials, including its CEO Arul Kanda Kandasamy.
Among its findings, PAC found that the 1MDB board of directors had failed to ensure the fund’s management complied with good accounting practises.
It also found that 1MDB Group’s capital financing structure and financial performance was unsatisfactory, noting that in January 2016, 1MDB’s debt hit RM50 billion, compared to its assets worth RM53 billion.
