The Federal Government debt remains within prudent limit, and is well capped at 55 percent to Gross Domestic Product (GDP), placing Malaysia among medium-indebted countries.

The Finance Ministry, in its 2015/2016 Economic Report released today, said as at end-June 2015, the Federal Government debt, comprising the cumulative total of all Federal government borrowings, stood at RM627.5 billion (54 percent of GDP).

The report is issued in conjunction with the tabling of the 2016 Budget today by Prime Minister Najib Abdul Razak, who is also Finance Minister.

"The debt has increased (2014: RM582.8 billion) mainly due to higher domestic debt issuance to meet deficit financing requirements," it said.

Domestic debt remains the major portion of total debt at 97 percent (RM608.7 billion), with Malaysian Government Securities (MGS) and Malaysia Government Investment Issues (MGII) constituting 87.8 per cent of the total debt (47.4 percent of GDP).

The remaining three percent (RM18.8 billion) of total federal government debt is from offshore borrowings, which is mainly denominated in US dollars.

The ministry said offshore borrowings remained manageable at 1.6 percent of GDP, despite the appreciation of the US dollar.

Financial institutions continued to be the largest holder of MGS and MGII, followed by the Employees Provident Fund (23.2 percent) and insurance companies (5.5 percent).

Foreign investors' holdings of MGS and MGII stood at 32.1 percent (end-2014: 29.2 percent).

"The continued foreign presence in the Malaysian bond and sukuk market reflects investors' confidence in the domestic macroeconomic fundamentals as they sought better quality instruments with higher returns.

"However, with the increased expectation of the US Federal Reserve's interest rate hike and the appreciation of US dollar against major and regional currencies, including ringgit, there was a slight reversal of foreign holdings in MGS from 48.5 per cent in June to 45.6 percent in September 2015, but still higher than 44.9 percent as at end-2014," it said.

Nevertheless, the large and long-term domestic institutions, as well as, well-developed domestic capital market was able to absorb any reversal of capital flows in the market, said the ministry.

- Bernama