‘RM6.23b bailout of Felda a credit negative to govt’s debt’

This article first appeared in The Edge Financial Daily, on April 19, 2019.
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KUALA LUMPUR: The RM6.23 billion financial assistance Putrajaya plans to spend in bailing out the Federal Land Development Authority (Felda) will add to the government’s debt burden, said Moody’s Investors Service.

In a research note yesterday, the rating agency said the Malaysian government’s debt is already significantly above the median of A-rated sovereigns, and the bailout package is credit negative.

Moody’s noted that the government plans to spread its aid over seven years, while Felda will raise about half of this. These fundraising activities will be backed by government guarantees, while the remainder will come from loans and grants.

“We estimate that the assistance will raise the government’s debt burden by 0.3% of gross domestic product (GDP) to 56% in 2019, substantially higher than the median debt ratio of A-rated sovereigns of 37.8%, and up from 50.7% in 2017.

“In our estimates, we include the debt of state-owned investment fund 1Malaysia Development Bhd and RM20 billion of funding provided to Lembaga Tabung Haji, the state-owned pilgrimage fund, at the end of last year through an asset-backed sukuk,” it said.

Moody’s said a higher debt burden will weigh on Malaysia’s debt affordability, particularly because the share of revenue to GDP, at 16.3% in 2018, is likely to remain at or near record lows.

“Interest payments account for 13.3% of revenue, significantly higher than the A-rated median of 4%,” it said.