KUALA LUMPUR: Debt has risen in the Asia Pacific region and emerging markets like Malaysia, Taiwan, Vietnam and Thailand have recorded large increases in debt.
Moody's Investors Service, in its latest report, said Malaysia has a much higher external debt to GDP ratio than the other large economies in the region, at 66 per cent in 2015 compared for example to 32 per cent in Thailand.
The ratio has also grown 11 percentage points since 2009 and Malaysia now has the second highest EVI or External Vulnerability Indicator in the region, after Mongolia.
In terms of external debt to GDP, it said Laos, Papua New Guinea, Malaysia and Sri Lanka recorded external debt to GDP over 50 per cent and have experienced an increase in leverage over the last five years, so they fall within the ‘vulnerable’ quadrant of the bubble heat map.
Mongolia, Malaysia, Papua New Guinea and Sri Lanka are the four economies in Asia Pacific that had an EVI of over 100 per cent in 2015.
Moody's said emerging market economies are becoming increasingly vulnerable to external shocks after a decade-long build-up of debt.
"The growth in debt was the highest in the Asia Pacific region, with the largest increase in external borrowing in China, India, Indonesia, Taiwan and Malaysia."
While China's external debt to GDP ratio is still the second-lowest globally at 13 per cent of GDP in 2015, the average external debt to GDP ratio for Asia as a whole has recently increased from 31 per cent ( 2008) to 47 per cent (2015).
The figure comes below the 78 per cent of emerging Europe, but comparable to the 48 per cent in Latin America and the 43 per cent in the Middle East and Africa region.
Debt is now growing faster than GDP and faster than foreign exchange reserves for many of these countries.
The increase in debt is being driven by the growth in private debt, rather than public debt.
Moody's expects that global economic growth will remain sluggish for the medium term and commodity prices will stay low for several years going forward.
"Even though developments differ by country, these trends show that emerging and frontier markets are now more susceptible to economy-wide crises than they were a few years ago," said Elena Duggar, an Associate Managing Director at Moody's.
"While sovereign debt profiles have improved, the increase in private sector debt is making sovereigns more vulnerable to contingent liabilities."