We did a poll yesterday and it seems though many lean towards the likelihood for the

government to ramp up mega projects to kick-start the economy.

Now, it would seem wise for them to do it now by raising more funds from a 10-year low MGS
rates. But in fact, rather than having a bank to evaluate the credit worthiness of the borrower,
bonds are weighted more on the attractiveness to investors on an international level.

The ability for central banks to increase the money supply in developing countries would be
weaker compared to major central banks such as Fed or PBOC. That explains their ability to
create money out of thin air for instances such as ‘unlimited QE’ when markets turn sour.

In short, the access to funds for government spending is not particularly easy to come by for
developing countries.

In Part 2, we would look at how Malaysia measures up with others considering many would take
the opportunity to raise liquidity from such low interest rates.

We Look at How Malaysia Measures Up with other Countries

Develop nations such as Singapore and Hong Kong are preferred borrowers due to their financial
status. You can see that their reserves level are less, but net international investments outweigh
bigger nations.

A simpler way to put it, they have a bigger balance in their investment account rather than their
savings account.

Comparing the rest, clearly the issue of high external debt haunts us again (we will never run
from this). A 400% debt to GDP for Singapore isn’t alarming when their interest rate is only
0.82% with assets overseas earning income.

But a smaller 62% debt to GDP for Malaysia could be serious when negative investment income
and 200 basis point higher in financing are the current standards. There is no issue of having high
debt when we are sure that we can pay it in the long run. The issue arises when Malaysia wants
to raise debt in this difficult time to kick-start the economy.

Similar situation to a person, you can spend 100% of your income and borrow cheap money to
buy money making assets. But what happens when a situation such as Covid-19 pops out? An
unforeseen bump could cripple the system!

Revolving back to the question. Do you think the government can continue to push our Mega
Projects?
The answer should be ‘NO’ because it is getting harder to issue bonds in this situation.

But the availability loan coming from bodies such as Asian Development Bank could flip the
problem around.But on what basis and rates that they will charge remains a big question. It won’t
be cheap!

If the Mega Projects come back, our national debt would increase and surely the interest rates
would be increasing in tandem. But to keep rates artificially low for economic expansion,
Ringgit has to depreciation in order to do so…