KUALA LUMPUR, Jan 31 – Malaysia is expected to sell RM88-90 billion in bonds this year to help refinance maturing securities and to fund the federal deficit says the Malaysian Rating Corporation (MARC) in its 2012 Bond Market outlook report.

The report said that Malaysia is looking at a deficit of RM43 billion and RM45.6 billion in MGS (Malaysian Government Securities) and GII (Government Investment Issue) that are expected to mature this year.

It estimated gross corporate bond issuance for 2012 to hit RM45-55 billion, to be sustained by corporate capital spending and Public Private Partnership (PPP) project financing.

The ratings agency noted that bond yields are currently considered low by historical standards, which made it an added incentive for the government.

It warned however that the percentage of foreign holdings of government debt in Malaysia are now more than 30 per cent of outstanding debt size which is among the highest in this region and double that of the peak just before the 2008 Global Financial Crisis.

The high foreign holdings could make the country more vulnerable to a pull out of foreign funds should the fiscal crisis in advanced countries worsen.

“At this junction, a mild recession in Europe is not expected to seriously affect the growth trajectory but our concern skews more towards the financial market confidence which would prompt huge capital reversal as witnessed during the 2008 global crisis,” said MARC.

The ratings agency estimated Malaysia’s GDP growth this year to drop to 4.4 per cent from five per cent last year.

MARC also expects the central bank to cut its Overnight Policy Rate (OPR) for the whole of 2012 from 3.00 per cent to between 2.5 and 2.75 per cent due to the need to bolster the economy against external weakness.