Malaysia’s gross domestic product (GDP) is expected to contract by nearly three percent once all the losses in 1Malaysia Development Bhd (1MDB) are made known and the value of its assets are written off, an expert told Bloomberg.
1MDB’s total debts and losses, previously kept secret by the prior government and stashed in ‘red files’, are finally being uncovered after the Pakatan Harapan party wrested power from Barisan Nasional during the 14th General Election in May.
In February 2018, former Prime Minister Najib Razak announced that the country’s debt only amounted to RM685.1 billion or 50.9 percent of the GDP.
But in late-May, new Finance Minister Lim Guan Eng revealed that the overall debt of the federal government has reached more than RM1 trillion, worsened by 1MDB’s losses, with the US Department of Justice estimating that over US$4.5 billion was pilfered from the fund set-up by Najib.
Currently, Najib, his wife Rosmah Mansor (who allegedly got a US$27.3 million pink diamond necklace courtesy of stolen 1MDB funds), Businessman Jho Low and several others are being investigated for their alleged involvement in the 1MDB corruption scandal.
More: Read about Malaysia’s Property Outlook for 2018
In light of the RM1 trillion debt and Pakatan Harapan’s fulfilment of its promise to reduce the Goods and Services Tax (GST) to zero percent starting in 1 June 2018, the current administration is under significant financial pressure.
Thus, it has decided to sharply reduce government spending by cancelling or scrapping large-scale projects like the Singapore-Kuala Lumpur High Speed Rail (HSR), which is estimated to cost about RM110 billion. It is also currently reviewing the RM66 billion East Coast Rail Link (ECRL).
According to the expert Wilfred Wee, a Singapore-based fund manager at Investec Asset Management, said the uncertainty over how Malaysia’s high debt will be tackled sans the GST will cause funds to shun the country for the meantime.
“Until the dust settles, we have reduced our still overweight exposure to Malaysia, recognizing that Malaysia’s current account and overall fundamentals remain by and large still attractive versus peers.”
Image sourced from NST Online
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