Wednesday, 15 April 2015

Sums of all fears : Malaysia External Debt

IMF defines the key elements of country external debt as follows:

1. Outstanding and Actual Current Liabilities
    Consideration is whether a creditor owns a claim on the debtor. Debt liabilities include  
    arrears of both principal and interest.

2. Principal and Interest
    External debt does not distinguish between whether the payments that are required are
    principal or interest, or both. Also, the definition does not specify that the timing of the
    future payments of principal and/or interest need be known for a liability to be classified
    as debt.

3. Residence
    To qualify as external debt, the debt liabilities must be owed by a resident to a  
    nonresident. Residence is determined by where the debtor and creditor have their centers
    of economic interest typically, where they are ordinarily located and not by their  
    nationality. Example, if any Japs or Korean or an Englishman taking any loan from any
    parts of the world (in other currency than RM) and invest it in Malaysia, will be counted
    as country external debt. Even us, a Malaysian citizen buying bonds from any foreign
    bank here in Malaysia in other than RM currency will be counted as country external

4. Current and Not Contingent
    Contingent liabilities are not included in the definition of external debt. These are defined
    as arrangements under which one or more conditions must be fulfilled before a financial
    transaction takes place. However, from the viewpoint of understanding vulnerability,
    there is analytical interest in the potential impact of contingent liabilities on an economy
    and on particular institutional sectors, such as government.

Generally external debt is classified into four :
(1) public and publicly guaranteed debt;
(2) private non-guaranteed credits;
(3) central bank deposits
(4) loans due to the IMF.

So it is clear that all debt by the government, private sectors, foreign investors, the riches, the poorer and anyonelse in other than RM currency and used or kept in this country will be counted as country external debt. Also, external offshore loans, government guaranteed debt such as in 1MDB, foreigner ringgit denominators security debt (2/3 from the increased amount) and public enterprises. This also will include me and all of you. Unliked before, since last year the defination has change and covered all mentioned above. It is self explanatory why the debt triples the amount back in 2013. This has been explained by DS Najib last month in Parliament. Still some people still questioning country debt. 97.1% or RM566.1 bil in domestic debt and 2.9% or RM16.8 bil in external debt. So where are we? Higher or lower from this regions?

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