Chapter 1: Economic, Monetary and Financial Developments in 2024

Malaysia’s international investment position remained favourable

As at end-2024, Malaysia’s net international investment position (IIP) recorded a net external liability position of -RM6.7 billion, equivalent to -0.3% of GDP (2023: RM123.7 billion, equivalent to 6.8% of GDP). This was due mainly to the larger increase in external liabilities of RM197.9 billion, primarily driven by higher FDI. This has more than offset the increase in external assets of RM67.5 billion arising mainly from portfolio investments. Nevertheless, the increase in both external assets and liabilities were partially offset by exchange rate valuation effects, particularly due to the stronger ringgit against the US dollar.

The net foreign currency (FCY) external asset position^[14] stood at RM1.3 trillion or 65.4% of GDP (2023: RM1.3 trillion or 70.6% of GDP). Given this position, the appreciation of the ringgit against the US dollar and other major currencies resulted in a smaller increase in FCY external assets compared to FCY external liabilities.

Malaysia’s external debt amounted to RM1,345.4 billion as at end-2024 or 69.7% of GDP (2023: RM1,242.6 billion or 68.2% of GDP). The higher external debt was due mainly to higher trade credits and intragroup loans by corporates. These were partly offset by exchange rate valuation effects following the ringgit’s appreciation, particularly against the US dollar, as well as the redemption upon maturity of FCY bonds, primarily by banks.

Risks surrounding Malaysia’s external debt were well contained given the favourable maturity and currency profiles. Coupled with BNM’s prudential and hedging requirements^[15] on corporates and banks, external debt remained manageable.

As at end-2024, the external debt-at-risk^[16] for corporates and banks amounted to RM7.8 billion and RM103 billion respectively (2023: RM9.2 billion and RM90.9 billion respectively). In particular, the increase in external debt-at-risk for banks was primarily due to interbank borrowings and deposit placements by non-residents. Nevertheless, the risk of this exposure remained limited as banks’ external debt-at-risk accounted for only 23.1% of their total external exposure. The bulk of the banks’ remaining external exposures was with related counterparties or in the form of long-term stable debt, thus minimising rollover and withdrawal risks. Cumulatively, corporates and banks’ external debt-at-risk amounted to 8.2% of Malaysia’s total external debt and 21.3% of international reserves (2023: 8.1% and 19.2%) respectively. About a third of external debt was denominated in ringgit (31.3%; 2023: 33%), and therefore not affected by fluctuations in the ringgit exchange rate (Chart 6b). They were mainly in the form of non-resident holdings of domestic debt securities (65.1% of total ringgit-denominated external debt) and non-resident deposits (17.8%). The remainder of external debt denominated in FCY was largely subject to prudential requirements on liquidity and funding risk management.^[17] Moreover, intragroup borrowings^[18] accounted for 44% of FCY external debt, which was generally more stable and on concessionary terms.

BNM’s international reserves amounted to USD116.2 billion (or RM520.1 billion) as at end-2024 (2023: USD113.5 billion or RM520.9 billion). This was sufficient to finance 4.9 months of imports of goods and services and was 0.9 times the short-term external debt.^[19] Notwithstanding this, other means of meeting external obligations remained available and continued to be strengthened. BNM’s long-standing policy of decentralising international reserves has led to the accumulation of sizeable nonreserve external assets and expanded Malaysia’s external position. In particular, the accumulation of FCY external assets by banks and corporates over the years, with the liquid portion amounting to RM945.9 billion,^[20] can be drawn upon to meet short-term external debt obligations of RM575.4 billion without leading to any claims on the international reserves (Chart 7).

Notes

[14] As measured by external assets in FCY less external liabilities in FCY.

[15] For more details on Malaysia’s external debt management, please refer to the ‘Malaysia’s Resilience in Managing External Debt Obligations and the Adequacy of International Reserves’ box article in BNM’s Annual Report 2018 on external debt.

[16] Corporates’ external debt-at-risk refers to offshore loans raised and bonds issued by high-risk corporate borrowers. Banks’ external debt-at-risk refers to external debt that is more susceptible to sudden withdrawal shocks, such as financial institutions’ deposits, interbank borrowings, and short-term loans from unrelated non-resident counterparties.

[17] Including requirements imposed on banks under local banking regulations.

[18] Comprises intragroup loans and interbank borrowings.

[19] For more details on BNM’s international reserves, please refer to the ’Building Buffers: Roles and Functions of BNM’s International Reserves’ box article in BNM’s Annual Report 2020.

[20] Corporates and banks’ liquid external assets.