State firm 1Malaysia Development Berhad (1MDB) must start generating money to pay off its debts because failure to pay will be a "systemic risk" to the country's economy.

However, Youth and Sports Minister Khairy Jamaluddin, who spoke at a dialogue in New York on Wednesday, said this does not mean that 1MDB’s fundamentals were not “good enough”.

“You’re talking about a company with debt or loans from Malaysian banks. It proves a systemic risk to the Malaysian banking system if anything happens to 1MDB," he said.

“I’m not so concerned that the liabilities will be a black hole (which) not only 1MDB but of course Malaysian banks will (also) fall into.

“But we need the 1MDB management to ensure there are quick business decisions taken to monetise the money to fulfill their debt obligations,” he said.

Khairy ( above, right ) said this on the same day the cabinet cleared 1MDB of wrongdoing after being briefed by 1MDB and its auditor Deloitte at the cabinet’s weekly meeting.

Listing out 1MDB’s various assets, he said there is no concern that the firm cannot fulfill its debts if “anything goes wrong (and) you have to strip sale the company”.

“You can have assets but if you don’t have cash flow to service your debts you have (a) problem…

“They (1MDB) need a sound cash flow to pay the interest on the loans and the loans themselves [...] so they need to start getting their projects off the ground quickly,” he said.

‘Cabinet wants 1MDB to start its business’

Crucial to the equation is the initial public offering of its power asset Edra Energy scheduled for later this year and the “parcelling out” of land assets in central Kuala Lumpur, he said.

It is now developing the Tun Razak Exchange, a financial hub located near Bukit Bintang in Kuala Lumpur and township Bandar Malaysia at the former Sungai Besi airport.

“As far as the cabinet is concerned, we want to ensure 1MDB can start their businesses, start monetising their assets and developing their business, and start to push the offering of the power assets to ensure they have the money.”

Last month, Reuters reported that tycoon Ananda Krishnan extended a RM2 billion loan to 1MDB, so it could service its existing loans with local banks.

The MInistry of Finance (MoF)-owned investment firm has a RM42 billion debt, which sources say will be dismantled into various entities before the skeletal remains of 1MDB are dissolved.

In response, 1MDB said there was no reason for it to wind down the company although the distribution of debt was part of a strategic review spearheaded by new president Arul Kanda.

On Wednesday, Prime Minister and Finance Minister Najib Abdul Razak, who chairs 1MDB’s board of advisors, instructed the Auditor-General to conduct a public audit to verify the firm’s accounts

The instruction follows an expose by Sarawak Report alleging that 1MDB in 2009 banked in US$700 million (RM2.5 billion) to a firm controlled by Najib family-linked tycoon Jho Low.

This was as part of a now defunct joint venture with oil firm PetroSaudi International, the whistleblower website said, citing leaked internal emails.

PetroSaudi denied this saying all funds from 1MDB for the deal went to PetroSaudi firms, while Low’s publicist did not respond to queries on the matter.