Malaysia’s $3.9 billion 1MDB settlement with Goldman Sachs Group provides a timely boost to government coffers just as it faces mounting debt.
The payment is equivalent to almost a third of last year’s budget deficit and 1.07% of 2019’s gross domestic product, according to estimates by Tamara Mast Henderson of Bloomberg Economics. The amount is “quite significant” and could help the government fund its fiscal stimulus package, said Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd.
Under the deal finalized on Tuesday, Goldman is to make a $2.5 billion cash payment to Malaysia within 10 days in exchange for the dropping of its criminal charges related to 1MDB. The US bank is also guaranteeing the return of $1.4 billion in assets worth 1MDB seized by authorities around the world.
Malaysia’s finance ministry said the money would be used to pay off existing debt of 1MDB, a public investment fund, thus not necessarily affecting the central government’s budget. However, the payment goes a long way to easing the government’s burden as it pushes to raise the debt ceiling to 60% of GDP.
The government is injecting $70 billion in stimulus to stimulate an economy in its worst crisis since the Asian financial crisis more than two decades ago. He expects the budget deficit to widen to 5.8 percent-6 percent of GDP this year.
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