No plans to monetise debt to increase govt revenue: MoF

KUALA LUMPUR – The government has no intention to use debt monetisation financing strategy as one of the ways to increase government revenue, said the Finance Ministry (MoF).

The ministry said this is on the back of strong investors’ demand for government securities, supported by sufficient domestic market liquidity of around RM158.7 billion.

“The debt monetisation method can also affect investor confidence and accelerate the outflow of funds, potentially increasing the government’s financing costs,” the ministry said in a written response to a question from William Leong Jee Keen (PH-Selayang) which was published on Parliament’s website today.

Leong inquired whether the government had considered debt monetisation or the method of selling government bonds to Bank Negara Malaysia (BNM) as a way to increase revenue.

MoF said the federal government’s fiscal borrowing programme is implemented based on the need to refinance matured debts and fiscal deficits.

It added that for the 2020-2022 period, the government borrowing amount was high to provide fiscal support and accelerate post-pandemic economic recovery.

“In this regard, the government has implemented a prudent financing strategy by adhering to the debt-related legislation which has been stipulated,” the ministry said.

MoF also said that the financing strategy implemented includes focusing on domestic issuances to support the local bond market while reducing borrowing costs and exposure to foreign exchange rate risk.

Additionally, the issuance of Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) instruments is also implemented through open tender, in which investors could transact with confidence and encourage the trading of government securities at competitive prices.

The ministry said BNM is one of the holders of government debt securities in an effort to fulfil the objectives and mandates stipulated in the Bank Negara Malaysia Act 2009 (Act 701).

It said that by the end of 2022, BNM’s holdings of government debt securities – which includes MGS, MGII and treasury bills – stood at 6.3% from 2.5% at end-2021.

“The purchase of government securities by BNM is part of the country’s monetary policy strategy in managing domestic market liquidity to ensure market stability during excessive volatility or liquidity downturns,” it added. – Bernama, March 27, 2023