Funds turn cool on Malaysia as 1MDB scandal swells debt to $250 billion

Plagued by heavy debt and questions about its management and investment decisions, 1MDB fund became a scandal that culminated in global probes into alleged embezzlement and money laundering

The escalating scandal around troubled state-investment-fund 1MDB is turning bond funds against Malaysia.

The disclosure that the nation’s debt is almost 60 per cent higher than previous estimates at 1 trillion ringgit ($250 billion), largely because of hidden liabilities tied to the troubled state investment fund, is convincing even fans of the country’s bonds to cut their holdings. Throw in the removal of a goods and services tax last month, and Prime Minister Mahathir Mohamad’s new government faces an increasing fiscal squeeze.

“Uncertainty over how the fiscal deficit will pan out will overhang,” said Wilfred Wee, a fund manager in