ZCZC
BCN-18
MALAYSIA-ISLAMIC-BOND-INVESTMENT
Malaysia’s use of Islamic bonds to fund deficit credit positive: Moody’s
KUALA LUMPUR, July 23, 2018 (BSS/Xinhua) – Moody’s Investor Service said on
Monday that the Malaysian government’s increasingly using longer-term Islamic
instruments to fund its deficit to lower liquidity risk is a credit positive.
“We view the shift toward Islamic financial instruments to be credit
positive for the sovereign, because of the more stable nature of these
holdings compared to conventional bonds, and the diversification that they
impart to Malaysia’s debt profile,” the rating agency said in a report.
The Malaysian government has a sizable debt burden which, at 50.8 percent
of the country’s gross domestic product (GDP), is larger than the median of
40.1 percent of GDP for A-rated sovereigns.
“Relatively low-cost and liquid domestic funding, and the fact that the
debt is predominantly local currency-denominated (96.4 percent of the total)
partially compensate for this, by presenting low exchange rate risk. Islamic
financial instruments are an important pillar of this local currency funding
component,” Moody’s said.
The Malaysian Government Investment Issues (MGII) – local currency,
Shariah-compliant debt instruments – accounted for 50 percent of total
federal government financing in 2017, up from a 26.4-percent share in 2008.
As a result of the Malaysian government’s growing funding via sukuk
(Islamic bond), the share of MGII has grown to 40 percent of outstanding
government debt at the end of the first quarter, up from 13.9 percent at the
end of 2008.
“The authorities’ various initiatives to support the market are likely to
drive this share higher still,” said Moody’s.
“More broadly, active participation in Islamic finance is part of
Malaysia’s broader vision to position itself as an international center for
the instrument, and a recognized goal in the central bank’s financial sector
master plan,” said Moody’s.
BSS/XINHUA/HR/1210