Selangor Journal
A general view of Bank Negara Malaysia in Kuala Lumpur, on July 31, 2019. — Picture by REUTERS

High corporate debt poses risk to recovery prospects from pandemic — BNM

KUALA LUMPUR, March 30 — Since its trough in 2020, global economic growth rebounded swiftly in 2021, aided by large-scale economic and financial support, said Bank Negara Malaysia (BNM) today.

In its Economic and Monetary Review 2021 released today, the central bank said, however, the path ahead is far from certain and there remain risks such as high corporate debt that could derail recovery prospects from the Covid-19 pandemic.

It noted that the risks stemming from many firms’ high corporate debt to leverage their operations during the pandemic could affect long-term productivity.

“As we move past the acute phase of the pandemic, longer-term reforms to address economic vulnerabilities and ensure the health of the banking system are vital,” BNM said.

The central bank pointed out that corporate debt globally was already at an elevated level at the onset of the pandemic.

“Hence the large supply and demand shocks over the past two years increased concerns that corporate bankruptcy would surge, especially if economic recovery was not forthcoming; but such large-scale bankruptcies have yet to materialised,” it said.

BNM said high corporate debt coupled with lower productivity could be symptomatic of rising zombification.

“Zombie” can be defined as firms with insufficient revenue to cover loan interest costs and are dependent on cheap credit to survive.

BNM said the presence of zombies could have negative implications for growth and inflation, directly and indirectly, by affecting non-zombie firms.

The central bank noted that beyond short-term measures, structural reforms such as investing in digitalisation are key to addressing long-term weakness and raising the economy’s ability to weather downturns.

In terms of addressing zombies, policymakers should strengthen insolvency laws to enable easier exit of non-viable firms and smoother restructuring of viable firms.

— Bernama

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