KUALA LUMPUR: Almost the entire outstanding federal government debt is in ringgit and not foreign currencies, Finance Minister Tengku Datuk Seri Zafrul Aziz said.
He said based on the data for the first quarter of 2022, 97.5 per cent of the country's debt was in ringgit and only 2.5 per cent in foreign currencies.
As such, he said this would reduce risks to the government's financial position due to the decline in the ringgit exchange rate.
He said the figure was due to Putrajaya's prudent policies in maintaining domestic financial stability while ensuring that risks to external debt were properly managed.
"Based on current global developments, most central banks have now shifted from the ultra-accommodative monetary policy support implemented during the Covid-19 pandemic to a tighter monetary policy.
"This action was driven by strong domestic demand and rising inflationary pressures," he said in a parliamentary written reply yesterday.
Tengku Zafrul explained that such policies were put in place following the United States Federal Reserve's decision to raise its interest rates 150 basis points to 1.75 per cent since March this year. The interest rate is expected to be increased by another 175 basis points to 3.50 per cent by the end of 2022.
"The rise in US interest rates has driven capital flows, resulting in a decline in currency exchange rates and global financial markets among developed economies, emerging economies and developing economies."
In the context of setting appropriate policies to promote sustainable economic growth, Tengku Zafrul said the latest Overnight Policy Rate (OPR) level in July 2022, which was 2.25 per cent, was still below its previous level before Covid-19 crisis.
He said the monetary policy was still accommodative and would continue to support the country's economic growth.
"The gradual increase of the OPR in May and July this year is important to prevent pressure in the future."
He said OPR rate that was raised hastily and on a large magnitude, such as in the US (inflation rate 9.1 per cent), the Philippines (inflation rate 6.1 per cent) and in Turkey (inflation rate 78.6 per cent), could slow economic growth and affect people's wellbeing.
"Favourable growth expectations and appropriate policy calibration will help support investor confidence in the economy and the ringgit."
Tengku Zafrul said this in response to Datuk Ahmad Jazlan Yaakub (Umno-Machang) who asked about the country's monetary policy plan this year following the uncertain global economy, especially the US market, which is expected to pose an indirect effect on Malaysia.
To another question where Ahmad Jazlan asked on the possibility of Malaysia facing an economic recession, Tengku Zafrul said from the domestic economic aspect, Malaysia's economic growth continued to record recovery momentum with five per cent growth in the first quarter of 2022.
He said the growth was supported by the increased domestic and foreign demands, as well as the recovery of the labour market.
The performance reflected the encouraging domestic economic outlook and the gross domestic product (GDP) growth momentum, he added.
"Malaysia's ability to withstand external shocks is also high, driven by a robust banking system, flexible currency exchange rates and adequate international reserves.
"Furthermore, the liquidity of the Malaysian financial market is supported by a deep and diverse capital market. Demand for government debt paper remains high with the average bid-to-cover ratio recording more than two times.
"Therefore, the Malaysian economy is able to achieve the GDP growth target of between 5.3 and 6.3 percent this year."