Malaysia: High-debt instead of high-income nation

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ringgit debtMalaysia has become the nation with the highest personal debt among 14 Asian economies, according to a new analysis by rating agency Standard & Poor’s. The current official household debt rate has jumped to 88 per cent of GDP from around 60 per cent in 2008.

Therewith, Malaysia has surpassed Thailand  which boasted the highest household debt in Southeast Asia at around 85 per cent of GDP in mid-2015.

In both countries, growth of private consumption has been slowing as a result, and if that continues, growth rates could be noticeably hit as any debt burden severely reduces disposable income, compounded by a battered currency that makes import goods more expensive, and lowering inflation which results in a rise in the adjusted cost of borrowing over the period of the loan.

In Malaysia, “households are accumulating debt faster than their incomes are growing, which will likely lead to repayment difficulties when the credit cycle turns,” Standard & Poor’s wrote in the report released in August.

While the country aims at becoming a “high-income nation” in 2020 as per the “national vision” of its government, in fact more and more young people under 35 have to declare bankruptcy as they are grappling with higher debts than they can handle, being unable to repay loans for homes, cars and other items, as well as study loans.

Reuters reports that Malaysia’s Department of Insolvency lists 5,547 individuals under age 35 who were declared bankrupt last year, more than double the number in 2005, the first year for which it has published such data. Last year’s number of under age 25 declared bankrupt was 635, triple the year-earlier figure.  In Malaysia, an individual can be declared bankrupt if a creditor shows that there is unpaid debt of at least 30,000 ringgit ($6,960).

What leads people even faster into bankruptcy is the widespread use of so-called “Along”, or loan sharks, illicit money lenders charging exorbitant interest rates from people who are already financially distressed and, in addition, lack the understanding of the dangers of “off-system” money lending. Similar to Thailand, where loan sharks have become a plague and are partly linked to organised crime, interest rates on secured loans (e.g with a title deed for land) or unsecured loans can reach 5 or 20 per cent, respectively – per month.

Notably, loan shark borrowings are of course off-the book debt, which means that the actual private debt in Malaysia is even higher than 88 per cent of GDP, with economist suggesting it might reach close to 100 per cent.

Malaysia’s national debt clock can be seen here.

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Reading Time: 2 minutes

Malaysia has become the nation with the highest personal debt among 14 Asian economies, according to a new analysis by rating agency Standard & Poor’s. The current official household debt rate has jumped to 88 per cent of GDP from around 60 per cent in 2008.

Reading Time: 2 minutes

ringgit debtMalaysia has become the nation with the highest personal debt among 14 Asian economies, according to a new analysis by rating agency Standard & Poor’s. The current official household debt rate has jumped to 88 per cent of GDP from around 60 per cent in 2008.

Therewith, Malaysia has surpassed Thailand  which boasted the highest household debt in Southeast Asia at around 85 per cent of GDP in mid-2015.

In both countries, growth of private consumption has been slowing as a result, and if that continues, growth rates could be noticeably hit as any debt burden severely reduces disposable income, compounded by a battered currency that makes import goods more expensive, and lowering inflation which results in a rise in the adjusted cost of borrowing over the period of the loan.

In Malaysia, “households are accumulating debt faster than their incomes are growing, which will likely lead to repayment difficulties when the credit cycle turns,” Standard & Poor’s wrote in the report released in August.

While the country aims at becoming a “high-income nation” in 2020 as per the “national vision” of its government, in fact more and more young people under 35 have to declare bankruptcy as they are grappling with higher debts than they can handle, being unable to repay loans for homes, cars and other items, as well as study loans.

Reuters reports that Malaysia’s Department of Insolvency lists 5,547 individuals under age 35 who were declared bankrupt last year, more than double the number in 2005, the first year for which it has published such data. Last year’s number of under age 25 declared bankrupt was 635, triple the year-earlier figure.  In Malaysia, an individual can be declared bankrupt if a creditor shows that there is unpaid debt of at least 30,000 ringgit ($6,960).

What leads people even faster into bankruptcy is the widespread use of so-called “Along”, or loan sharks, illicit money lenders charging exorbitant interest rates from people who are already financially distressed and, in addition, lack the understanding of the dangers of “off-system” money lending. Similar to Thailand, where loan sharks have become a plague and are partly linked to organised crime, interest rates on secured loans (e.g with a title deed for land) or unsecured loans can reach 5 or 20 per cent, respectively – per month.

Notably, loan shark borrowings are of course off-the book debt, which means that the actual private debt in Malaysia is even higher than 88 per cent of GDP, with economist suggesting it might reach close to 100 per cent.

Malaysia’s national debt clock can be seen here.

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