KUALA LUMPUR (July 24): With Malaysia's RM1 trillion debt becoming a contentious issue since it was unveiled late 2018, UOB Research has called for the Government to establish guidelines on expenditure that are consistent with projected revenues and anchored to the debt thresholds.

"The expenditure rules should be consistent with projected revenues. This will help enhance fiscal transparency and strengthen the credibility of the debt thresholds," it said.

Besides that, UOB Research said that there should also be close monitoring of external debt through issuance of foreign currency bonds.

"Malaysia’s adherence to the limits on external financing and ensuring that bulk of the country’s borrowings remains funded in local currency is important for both debt management and credit risk," it said in a macro note earlier today by senior economist Julia Goh and economist Jasrine Loke Siew Ting.

"While the direct cost of borrowing from abroad may appear relatively low, the effective cost could be much higher after imputing the cost of hedging out currency risks," UOB Research added.

UOB Research said that Malaysia’s high Government debt levels need to be managed and restructured alongside fiscal consolidation

Even though there are variations in what constitutes the country’s official public debt, UOB Research believes that any realisation of contingent liabilities or liabilities that require the Government’s support would intensify concerns about public debt.

This would put upward pressure on credit default swaps, domestic interest rates, aggravate capital outflows, and weaken the ringgit.

So far, UOB Research commended the Government's plan to address the high debt issue by enacting the Fiscal Responsibility Act and the Government Procurement Act.

These Acts, it said, will help enhance credibility and accountability of public finances.

UOB Research also noted the Government's establishment of the Debt Management Committee, which will focus on fiscal consolidation, reducing overall debt and liabilities of the government, and improving debt management.

"Some of the measures undertaken include evaluation of high-cost projects and identification of Government-guaranteed debt to be restructured. The Committee will also review Acts, procedures and legal requirements relating to issuance of direct Government debt, Government guarantees and other Government commitments," it said.