Malaysia: Manageable subsidy costs and resilient funding – BNP Paribas

BNP Paribas economists note that Malaysia has kept stable the price of RON 95 fuel used mainly by households, limiting the fiscal impact of subsidies to about 0.2% of GDP if Oil stays below USD 100. Despite some foreign ownership of government debt, long maturities and deep domestic capital markets reduce vulnerability to global yield volatility.

Limited fiscal hit, strong local markets

"The impact on public finances of the increased subsidies introduced since the start of the conflict in the Middle East is expected to remain modest as long as the average crude oil price does not exceed USD 100 per barrel over the year. "

"The cost is estimated at between 0.2% of GDP in Malaysia and 0.6% of GDP in Indonesia, assuming that currencies stabilise at current levels, as any further depreciation against the dollar would automatically increase the cost incurred."

"The most exposed countries would be those with the highest interest burdens (India), with short maturities, debt held more widely by foreign residents (Indonesia and Malaysia) and denominated more widely in foreign currencies (Indonesia)."

"In Malaysia, although a significant proportion of government debt (65.3% of GDP) is also held by foreign investors (21.1% of the total), this debt has long maturities, which reduces its vulnerability to volatility in international financial markets."

"Furthermore, the domestic capital markets and the local investor base are sufficiently developed to finance the government’s needs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)