Ukraine war offers Malaysia a chance to reduce debts, says finance minister

The rise in oil prices caused by the war in Ukraine could improve Malaysia’s balance sheet, according to its finance minister, and provide a respite for the Southeast Asian country as it tries to recover from the 1MDB scandal and the plague.

Zafrol Aziz said that although the conflict in Ukraine will have a “very marginal” negative impact on the Malaysian economy, he still expects to reduce the oil-producing country’s deficit and improve its fiscal position. Commodity prices are rising.

“Rising commodity prices… Will actually help Malaysia,” said Zafrol, a former banker who joined the Malaysian government in 2020. “We put a price of oil around $ 66 a barrel in our budget. But obviously today is much higher than that, so there is a potential upside in terms of our fiscal situation.”

Malaysia has Struggling For years to curb national debt levels, which worsened after billions of dollars were raised from the 1MDB state fund in a scandal that befell then-Prime Minister Najib Razak in 2014.

The corona plague exacerbated these debt problems. After the government released billions of public funds to support the economy, Malaysia’s fiscal deficit reached 6.4% of gross domestic product in 2021, double the pre-plague target.

But the rise in oil prices is an unexpected opportunity for an economy that produces a fifth of its GDP from oil and gas, according to the government. Aziz said he expects to reduce the deficit to 6% this year.

In response to the expected boost to business in Malaysia, investors have piled up state shares. Malaysian stocks outperformed global equities during the Ukraine crisis, with the FTSE-Bursa Malaysia Kuala Lumpur Composite up 4.6% since early February.

But Zafrol noted that the benefit from higher oil prices will not fully compensate for the impact on global demand during the crisis in Ukraine.

“We are part of the global supply chain and hence the political and financial stability of our trade [foreign investment] Partners can impact Malaysia’s economy, “he said.” That’s why we assume a 20 basis point impact on GDP. “

Zafrol spoke to the Financial Times the same day he was former Goldman Sachs banker Roger Ng convicted By an American jury in connection with the embezzlement in 1 MDB, in a media case that refocused attention on the scandal. But the finance minister also rejected the long-term impact of the dispute on the Malaysian economy.

“I know that 1 MDB is more a matter of principle, its legality,” Zafrol said. But the amount still to be repaid, which he said was $ 17 billion ($ 4 billion), was a “tiny amount” of the total national debt.

He pointed to the victory of Barisan Nasional, a Najib-affiliated political coalition, in two polls in the country since November. “If 1MDB is such a big issue, they would not have won a two – thirds majority in two states,” Zafrol added. “Obviously people want to move on.”

Ukraine war offers Malaysia a chance to reduce debts, says finance minister Source link Ukraine war offers Malaysia a chance to reduce debts, says finance minister

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