Tabung Haji Case Study

As we know about the current condition of debt in Malaysia, there are a few factors which lead the situation happened. Firstly, financial mismanagement of 1Malaysia Development Berhad (1MDB), Tabung Haji and MARA drive up the sovereign debt. This factor is supported by the issue of 1MDB collapse with deeply indebtedness because of its mismanagement of investment fund of 1MDB. Therefore, the poor performance of government-owned 1MDB rose the borrowings to RM 41.9 billion last year from RM36.2 billion in the previous period. The failure of 1MDB to repay RM 2 billion debts on time directly affect the Malaysian financial system especially the biggest lenders, Maybank and RHB bank and erode the credibility of the government. In the case of Tabung Haji, it accumulated losses from overestimating the value of properties which caused it pay in higher price to the properties and the overrun of cost in project construction. Improper and ineffective control of the management increased the size of liabilities. Hence, Tabung Haji is in a weak financial position since it need more borrowings to sustain their operations.

Moreover, corruption poses a potential threat as an issue, particularly in light of the 1MDB problem. The malpractices of public projects such as construction will

The increment of sovereign debt will increase the cost of borrowing. This is because the investors will hesitate to lend their money due to high probability of default risk when the sovereign debt is high. In order to secure their money, they will increase the interest rate of borrowing. In the long run, the massive debt and higher interest payment cause the government not enough cash flows to repay the loan principal and the cost of interest. Consequently, the government needs to spend or borrow more money to cover the accumulated debts over