The recent depreciation of the Ringgit’s value may have an unwanted effect on the repayment of Malaysia’s 1Malaysia Development Bhd’s (1MDB) debt as it may end up costing our country an additional RM7.7 billion. This is according to former Finance Minister Lim Guan Eng who urged the government to adopt structural economic reforms to stop our currency’s rapid descent.
In a statement yesterday (17 September 2022), Lim said that the government will have to pay an extra RM7.7 billion to repay the principal of the three tranches of US dollar bonds totalling USD6.5 billion that Goldman Sachs had arranged for 1MDB. The USD6.5 billion dollar bonds issued in 2012 (USD1.75 billion at 5.75% per year and USD1.75 billion at 5.99% per year) and 2013 (USD3 billion at 4.4% per year), are due in 2022 and 2023 when the strength of the US dollar is at its highest in 24 years.
Former Finance Minister and MP for Bagan, Lim Guan Eng.
Lim, who is also the Member of Parliament (MP) for Bagan further elaborated that at RM3.35 to the USD when the three 1MDB USD bonds were issued, the principal amount of USD6.5 billion would come up to about RM21.8 billion. However, at the current exchange rate of RM4.54 to the USD, the principal amount due for the USD6.5 billion would be higher at RM29.5 billion or RM7.7 billion more.
Moreover, cumulative interest would have totalled just over RM1 billion a year and RM10.5 billion in the past decade. Hence, a weaker Ringgit this year means that the annual interest cost is around RM1.5 billion instead of RM1 billion. As of the time of writing, the Ringgit dropped to a 24-year low of RM4.54 against the US dollar and also recently dipped to a historic low of RM3.26 against the Singapore Dollar whilst the Indonesian Rupiah has appreciated by more than 4% this year against the Ringgit.
So, what do you guys think of this statement by the former Finance Minister? Share your thoughts with us in the comments!
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