Malaysia won’t go bankrupt like Sri Lanka, finance minister tells MPs – even as its China palm oil exports tumble
- Malaysia’s budget has been strained by inflation-relief efforts, with a surge in government subsidies putting the country at greater risk of default
- Zafrul Aziz’s assurances on Tuesday came as the commodities minister warned that Malaysian palm oil exports to China will continue to be subdued
19/07/2022 (South China Morning Post) - Malaysia is stable and isn’t at risk of going bankrupt like Sri Lanka, Malaysian Finance Minister Zafrul Aziz said, citing the International Monetary Fund’s prediction for the economy to expand 5.75 per cent this year as reason for confidence.
“The IMF has never said that Malaysia is facing economic troubles that could bankrupt the country,” he said in parliament on Tuesday. “If we compare our economic indicators with Sri Lanka, it is clear our economy is far more stable than theirs.”
Still, the government must continue to manage the country’s finances prudently and control the level of debt, he said.
A Bloomberg gauge of one-year default probability showed Malaysia at 2.43 per cent compared to Sri Lanka’s 19.4 per cent, with a reading above 1.5 per cent signifying high risk of failure to pay.
The Southeast Asian nation, whose budget is strained by inflation-relief efforts, is expected to fork out a record 77.3 billion ringgit (US$17.6 billion) in total subsidies this year, with concessions on fuels and cooking gas alone projected to touch 37.3 billion ringgit, Zafrul said last month.
The jump in palm oil and crude oil prices this year is expected to generate tax revenue of 10 billion ringgit for the country, Zafrul said on Tuesday, adding that the government will also garner an additional 10 billion ringgit from income and indirect taxes as economic growth is expected to be stronger in the second quarter of this year.
Even so, higher revenues would be insufficient to cover the surge in government subsidies, he said.
Meanwhile, Malaysia’s commodities minister on Tuesday warned that its palm oil exports to China will continue to be affected by global economic challenges and overall imports in the world’s second-largest buyer are likely to decline.
Malaysia’s exports to China during the first half of the year have already plunged 24 per cent from the same period last year, as sky-high prices caused by global edible oil shortages discouraged stockpiling, according to Malaysian Palm Oil Board data.
China’s Foreign Minister Wang Yi during a visit to Malaysia last week said China is ready to import more palm oil and other agricultural products.
In a statement on Tuesday, Malaysia’s Commodities Minister Zuraida Kamaruddin said her ministry is optimistic China will increase its palm oil imports despite current global challenges.
However, she warned it is unlikely that China’s total global imports in 2022 will come close to the volume recorded last year, citing a high-interest rate environment, inflationary pressures, and recession concerns.
Zuraida estimated China’s total palm oil imports this year at 4.8 million tonnes, based on the assumption that import volumes during the second half of the year are on par with the previous year.
“A few factors that influence the prices of palm oil, like the demand from downstream sectors, the soybean situation in China, Indonesia’s policies to curb domestic palm oil price hikes, and tightness in the supply of global edible oils, will continue to affect the prospects of China’s palm oil imports from Malaysia,” Zuraida said.
Malaysia’s benchmark crude palm oil prices have in recent weeks tumbled to levels seen before Russia-Ukraine conflict, which triggered global edible oil shortages. It traded at 3,904 ringgit (US$876.12) a tonne on Tuesday afternoon.