Narrower Deficit, Lower Maturities In 2025, Gross Debt Issuance At Rm163.5 Bln - CIMB Securities

KUALA LUMPUR, Oct 19 (Bernama) -- The federal government’s narrower deficit of RM80 billion next year, which is RM4.3 billion below the revised estimate of RM84.3 billion this year, suggests milder net borrowing requirements next year, CIMB Securities Sdn Bhd said today.

It said the federal government debt stood at 63.1 per cent of gross domestic product (GDP) as at end-June this year with the Ministry of Finance’s (MOF) projections indicating that the ratio will remain around 64 per cent at the end of 2024 and 2025.

The research house also said it expects a slightly longer medium-term fiscal framework (MTFF)l consolidation target through 2027.

It added that debt service charges will total RM54.7 billion in 2025, a milder increase from RM50.8 billion in 2024, due to smaller net borrowings and lower interest rates. 

“Combined with maturing Malaysian Government Securities (MGS) and Government Investment Issue (GII) of RM83.5 billion, implied gross issuance is set to fall sharply to RM163.5 billion from RM183 billion.

“A US$1 billion sukuk maturing in April 2025, which we expect will be refinanced in US dollar and therefore neutral for the ringgit sovereign funding outlook," said CIMB Securities in a research note.

It added that MoF’s revised estimates for MGS and Malaysian Government Investment Issue (MGII) issuance in 2024 of RM90.5 billion and RM92.5 billion puts bond issuance right on target with its projection of RM183 billion. 

However, CIMB Securities said gross issuance may be higher than implied by net borrowing and refinancing headline numbers, following T-bill (treasury bill) substitution and 2026 pre-funding.

Firstly, it added the government is poised to continue bill-for-bond substitution to trim short-term debt securities and manage refinancing risk.

In addition, the benign MGS and MGII repayment outlook in 2025 (RM83.5 billion as at Oct 18, 2024) gives way to a maturity wall in 2026 (RM108.7 billion), which reflects sizeable shorter-tenor issuances made during the pandemic, it said.

Should the fiscal deficit continue to slim down to RM78 billion in line with the revised MTFF projections, gross borrowing would still grow to RM187 billion in 2026 – presenting a supply headwind, CIMB Securities said.

One option is to smoothen the gross issuance profile over 2025-2026, it added. 

This is by running down the T-bills (treasury bills) outstanding from RM23 billion to RM14 billion to RM16 billion next year as well as exploring bond switches or pre-funding part of the maturities coming due in 2026 to keep gross issuance for financial year 2026 at RM181 billion and financial year 2025 at RM178 billion to RM179 billion compared to this year's estimate of RM183 billion.

-- BERNAMA