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Don’t cheer over sukuk take-up, it’s debt, govt told

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Economist Carmelo Ferlito says sustainability sukuk should not be confused with foreign direct investment.

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Free Malaysia Today
Tengku Zafrul Aziz and Muhyiddin Yassin have hailed the oversubscription of the sustainability sukuk issue, but Carmelo Ferlito has reminded that it’s debt that has to be paid back – and in US dollars.

PETALING JAYA:
The enthusiasm of government leaders over the oversubscription of its recent sustainability sukuk issuance is misplaced, says an economist, adding there is “nothing to cheer about”.

“The government issues sukuk to raise money. It’s debt, it’s not foreign direct investment (FDI),” said Carmelo Ferlito of the Center for Market Education.

“Yes, the oversubscription is a sign that the market is confident of the Malaysian government’s ability to repay its debts over a long period, but it’s nothing to cheer about.”

Ferlito said the issuance of the sukuk in US dollars poses a long-term threat to Malaysia’s finances because of the risk that comes with currency fluctuations.

“In the past decade, the ringgit has depreciated by almost 30% against the US dollar. So if this trend continues, it means the amount of money we need to repay when the debt is due increases.”

He was commenting on the remarks of some government leaders on the oversubscription to the world’s first sovereign US dollar sustainability sukuk, which was done through the issuance of US$800 million 10-year trust certificates and US$500 million 30-year trust certificates.

Subsequently, finance minister Tengku Zafrul Aziz and Prime Minister Muhyiddin Yassin said the oversubscription of the sukuk by 6.4 times was a reflection of investor confidence in the country and that it proved Malaysia was on the right track in managing the economy.

Ferlito says that while it is understandable that the government would seek to raise funds through sukuk issuance, its focus should be on making clear how it plans to utilise the money rather than herald it as an accomplishment.

“Sukuk, like bond subscriptions, is money lent to the government. The benefits to the economy depend on how the money is spent,” he said.

“It is not the same as when an investor pumps money into the economy, creating employment and business opportunities.”

He said the issuance of the sukuk should be accompanied by clear, detailed plans on how the government intends to spend the money and repay the debt.

“This transparency is important not just for the public but also investors and credit ratings agencies who may have concerns over the sustainability of government finances,” he said.

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