Japanese credit line won’t disrupt economic growth: AmBank Research

June 13, 2018 | By | Reply More

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PETALING JAYA: AmBank Research said the potential credit line from Japan could be used for economic development and to support small and medium scale industries, which ensure the economy continues to grow at a sustainable pace without straining liquidity.

“While the credit facility should help support the domestic economic activity, it also provides room for the government to continue ‘cleaning up the red files’ without disrupting the economic growth,” it said in a research note today.

It expects the loans to be on a special rate of around 1% or even lower, depending on the type of projects, over a long-term period of 30 to 40 years.

During a recent visit to Japan, Prime Minister Tun Dr Mahathir Mohamad has asked Japan for yen-denominated loans to pare down the country’s hefty debt load of RM1.09 trillion or 80.3% of gross domestic product (GDP). Japan’s Prime Minister Shinzo Abe said he will study the request and that no specific amount was discussed.

Malaysia has also requested Japanese assistance to improve existing railroads to increase the frequency of freight and passenger trains running on underused tracks and stations, with the aim of reducing road traffic and enhancing rail transport.

The research house said the decision to seek credit from Japan resembles the scenario of the 1997 Asian financial crisis. After a four-year halt of the Japanese Official Development Assistance, Malaysia ran into difficulties and had sought help in 1998 after the crisis.

“We have been seeking financial aid from the Japanese government since the First Malaysia Plan, and would have been exposed to a total of more than US$2.8 billion (RM11.2 billion). We feel that the latest request suggests the country could potentially run into difficulties due to the huge public debt and the need to balance the books with a fiscal deficit-to-GDP ratio at 2.8%.”

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