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CNBC Exclusive Transcript: Tengku Zafrul Aziz, Minister of Finance, Malaysia

Below is the transcript of a CNBC Exclusive interview with Tengku Zafrul Aziz, Minister of Finance, Malaysia. If you choose to use anything, please attribute to CNBC, Martin Soong and Sri Jegarajah.

Martin Soong (MS): Tengku Zafrul Tengku Aziz is Malaysia's Minister of Finance. He joins us live from the capital Kuala Lumpur for this CNBC exclusive interview. Minister, good morning. Thank you for your time and great to see you. We have to start on the coronavirus. The number of cases, spiking, surging. A lot of people are describing this as a third wave for Malaysia, which does pose a pretty severe challenge for the economy. How can you tell us how close is the government to having to go back to much more stringent movement orders?

Tengku Zafrul Aziz (TZA): Thank you, good morning, Martin. First of all, regarding the COVID issue in Malaysia, if we look at the numbers, it is going up, but it is concentrated in two areas, namely in Kedah, in Sabah, and it is very much under control. And of course, there are concerns among the public about the numbers. But if you look at it, if you break down the numbers, it's like I said, is really focused in those two areas. And we've proven ourselves to be successful in managing COVID. And we can do it again, as Martin, as you mentioned, so far infection in Malaysia is 12,381. Actually, above slightly above 12,000. With a population of 32 million, the recovery rate has been very high. The recovery rate has been at 83%. In terms of healthcare capacity, given that the active cases today are around 1,961. We have around 10,000 beds and more available if needed. So, we have definitely, things are under control, our capacity is there, and you will see numbers going at these levels for a while as we do more targeted testing at the detention centers, especially two detention centers. We have been on the curve before and we will flatten the curve again.

MS: We will flatten the curve again. Does that mean that the government is considering another partial lockdown? Or is that - is that - has that been ruled out?

TZA: That's been ruled out. Because it's targeted in two areas. It's not widespread. And numbers are really in two detention centers if you really look at the breakdown of those numbers and as you know, testing are being done, targeted testing. So naturally, you will see the numbers going up during this period. But in terms of – we're going focus more on the enforcement of the SOP going forward.

MS: Okay, standard operating procedures, understood netting out the detention centers. You refer to Sabah, obviously there were state elections there. Are you saying that ironically, the movement of people between could have potentially been one of the causes for the spikes that we're seeing?

TZA: Well, if you look at the causes of the spike, Kedah, in its big detention center there are over 300 numbers that are tested positive. Sabah, is of course, we had an election there. But if you look at the breakdown of the numbers again, it's not entirely because of the election. There are people there who go up for business, then tourists, domestic tourism, so that those are the real reasons. And if you look at the number of Malaysians coming from Sabah to Peninsular Malaysia, we have done the testing at the-at the-at the airports and only one, slightly more than 1% have tested positive.

Sri Jegarajah (SJ): Minister, can you bring us up to speed in terms of the national airline? How would you describe its financial health? Has Malaysia Airlines approached you for additional funding and financial support and does it need it?

TZA: Thank you, thank you Sri. Malaysia Airlines, the shareholder is Khazanah, and Khazanah is looking into this at the Ministry of Finance and we are leaving it to Khazanah to deliberate on this matter. It is completely commercial and both airlines, Malaysia Airlines and Air Asia, have their own shareholders. So, the government feels at this point in time that we will not bail out any airlines. So, it's up to the shareholders of the respective airlines to provide any support that they feel appropriate and necessary. But the government's primary concern is of course, to ensure that there is sufficient connectivity, yeah, that is necessary to support the continued economic recovery and socioeconomic development of the country.

SJ: And just getting back to the measures that you have in place to support the local workforce and world over. People have lost their jobs. They continue to lose their jobs because of the absolutely profound impact of COVID. Do you plan in Malaysia to extend the wage subsidy program?

TZA: Hey Sri, as mentioned earlier by Martin, the Prime Minister recently announced a 10 billion stimulus package which brings the stimulus package that we've announced, totaling now from 295 billion ringgit to 305 billion ringgit, which includes a fiscal injection of close to 55 billion ringgit. And the biggest of that is, now that it's being allocated is for the wage subsidy. And in that 10 billion announcement that was done about two, maybe perhaps three weeks ago, we announced the continuation of wage subsidy, which has been very successful. If you look at the unemployment rate in Malaysia, it was, it peaked in May at 5.3%. And then it went down to five 4.9% in June, and now it's now at 4.7% in July, and therefore, we have decided that this is a good program to have, and we have continued for another three months. And that will be until end of May in 2021.

SJ: And Minister can I just get your view on portfolio inflows and the perception of Malaysia by foreign investors? Because one story I'm sure that you're watching is how Malaysian government bonds have been placed on the watch list, remain on the watch list for possible exclusion by FTSE Russell. On balance, do you think, how would you characterize this this decision or this-this this-attitude by FTSE Russell, do you think it's unfair? Do you think it's warranted? And what are the risks, do you think, of Malaysian bonds being excluded?

TZA: Thank you. Well, if you look at where we are today, there is no change in their position and we respect the decision that was made. We're not concerned, we're not overly concerned. It is, has been, on the watch list for a while now. There have been positive bond inflows in fact, for four consecutive months for Malaysia. So we are quite optimistic that this will continue. It is important that we continue to manage the COVID well, and because this is our business age and Malaysia is definitely open for business.

MS: Minister, you know, the stimulus and all sorts of support that you were just referring to, the latest 10 billion package. It brings the total to - you've thrown literally the equivalent of almost a quarter of Malaysia's GDP at stimulus and helping to support the economy through the coronavirus. Even before the coronavirus, though people like the World Bank were concerned that Malaysia had limited fiscal room or space to move simply because government revenues have been declining for the last eight years or so. How tight are things in terms of finances for Malaysia's Government right now?

TZA: Yes, yes, the fiscal stimulus is about 20% of our GDP. Actually Martin, our revenue is increasing, but from this year for obvious reasons, and therefore we are anticipating and forecasting the deficit will go up this year for Malaysia. Deficit will be around 5.8 to 6%, most of it funded by domestic borrowings. The fiscal injection, like I mentioned before totals about 55 billion ringgit, and this will be funded through government borrowing. We are still focused on fiscal responsibility. Of course, we have a debt to GDP now at around 53%. It will end around 56%. We have approval from parliament to go up to 60%. Right. But what's positive is that we are optimistic just like IMF and World Bank that Malaysia's GDP next year will be in the region between 5.5 to 8%. GDP of course this year, we will anticipate a negative growth for Malaysia. Our central bank has forecasted growth of between negative 5.5 to negative 3.5 for this year. But it's important to look forward and make sure that we have that recovery this year. But we are seeing sheets of recovery in Malaysia. Numbers are improving as we open the economy in early May.

SJ: And the same is true globally. Minister but it is, and it still remains a fragile recovery minister. We're very grateful for your time today. Thank you very much Tengku Zafrul Tengku Aziz, Malaysian Finance Minister.


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