KUALA LUMPUR, Oct 11 -- The government has developed the Debt Sustainability Analysis (DSA) to conduct public and external debt sustainability analysis as a tool to better detect and prevent a potential crisis.

The Ministry of Finance (MoF) in its 2020 Fiscal Outlook and Federal Government Revenue Estimates Report, said the DSA framework was designed for market-access countries and low-income countries, comprising two components, namely analysis on public debt and external debt, comprising the baseline scenario and sensitivity analysis.

“The DSA provides insight on the country’s debt burden over the medium term against its sustainable path by identifying vulnerabilities in the existing debt structure or policy framework and examines the impact of alternative debt-stabilising policy path,” it said.

Based on the baseline scenario analysis, the federal government’s gross financing needs are projected to remain below the DSA benchmark limit for emerging countries at 10 per cent of gross domestic product (GDP).

“The analysis shows gross financing needs will decline from 8.9 per cent in 2019 to 7.4 per cent in 2024 based on the assumption of gradual consolidation in the medium term.

“Likewise, the federal government debt is projected to remain manageable, registering 50.2 per cent of GDP in 2024, below the self-imposed limit of 55 per cent,” the report said.

The MoF, however, said some debt indicators remain vulnerable to stress tests, namely real GDP growth, contingent liability and combined macro-fiscal shocks.

In relation to the debt profile, it said the main risk identified from this model is the sizeable external financing needs.

“Therefore, a gradual fiscal consolidation and debt reduction are crucial to building adequate fiscal buffers, particularly in the event of a global economic and financial crisis.

“In this regard, a sustainable debt level will further improve investors’ confidence, thus safeguarding the country’s sovereign rating,” the report said.

-- BERNAMA