KUALA LUMPUR: Fitch Ratings today said the government's 2024 Budget, which is still slightly expansionary, is expected to drive the sukuk-dominated Malaysian debt capital market growth this year.
In a statement today, it said the authorities are planning several development initiatives guided by the Madani Economy framework.
Malaysia has high public debt compared to its peers; Fitch Ratings estimates general government debt at 72.3 per cent of gross domestic product (GDP) in 2023.
Fitch Ratings said that 2024 issuance is set to rise due to issuers' funding diversification and refinancing needs.
Sukuk and Malaysian ringgit debt will continue to dominate issuance.
Malaysia is the largest sukuk market globally, and the third-largest debt capital market in the Asean region, with a 20 per cent regional share outstanding at end-2023, close behind Indonesia (24 per cent) and Singapore (22 per cent).
The Malaysian debt capital market grew by 5.8 per cent in 2023 to US$542.5 billion outstanding debt, 92 per cent of which is in ringgit.
About US$60 billion of debt will mature in 2024.
US$3.1 billion of ESG-related debt was issued in 2023, down by 46 per cent from 2022. Of this, 95 per cent was in sukuk format, up from 50.3 per cent in 2020.
Fitch Ratings Global Head of Islamic Finance managing director Bashar Al Natoor said, sukuk held the majority share, around 60 per cent of outstanding debt in 2023 and this trajectory is expected to continue.
"The Malaysian regulator grants tax deductions to sukuk issuers and investors, which steers growth. However, ringgit currency volatility is a key entry limitation for international investors in the Malaysia DCM, while for sukuk the demand from GCC Islamic banks can be additionally impeded due to differences in sharia interpretation," he added.
Despite the ringgit depreciating by over 5.0 per cent against the US dollar in 2023, hitting a record low, foreign holdings in the outstanding DCM grew to 14 per cent in first nine months of 2023. In 2022, it was at 13.1 per cent.