China-financed projects to help Malaysia avoid debt trap

By Chester Tay

The multiplier effect from China-financed infrastructure projects will help keep Malaysia clear from the kind of debt crisis faced by Sri Lanka currently.

At a seminar by Singaporean research organisation Institute of Southeast Asian Studies yesterday, Affin Hwang Capital senior associate director on equity research Loong Chee Wei said as Malaysia shows improvement in its infrastructure development, the country might be able to attract more foreign direct investment (FDI), which in turn will create more economic benefits for the government.

“Yes, debt will rise, but these are government-guaranteed debts. At the end of the day, it will be off balance sheet [that] eventually [the] Malaysian government and public have to pay off these debts, through taxpayers’ money. But of course, also through Petronas (Petroliam Nasional Bhd) money that goes into government revenue,” he explained.

“However, infrastructure has its multiplier effects . When the economy grows once these infrastructures are built then eventually, it should generate income for the government to pay them off. Perhaps it could attract more FDI because you have better infrastructure. [As a result] we would still be able to pay off [the debts],” he added.

Loong opines that the Malaysia situation is different from that of Sri Lanka, because the latter has a wider trade deficit.