Understanding Malaysia’s national debt

Summary

Malaysia's federal debt has raised concerns, reaching 1.24 trillion ringgit in nine months in 2023. However, experts suggest the debt isn't a major financial threat. Economist Golin Thai attributes the rise to high spending during the COVID-19 crisis and mismanagement tied to the 1MDB scandal. Despite the debt, Malaysia’s finances are stable, backed by a strong economy and high credit ratings. The government is working on fiscal reforms, such as subsidy rationalization and new taxes, to reduce the deficit and improve living standards. Projections indicate a positive outlook, with economic growth and inflation under control.

Takeaways

• 😀 Malaysia's federal debt increased by 66 billion ringgit in 2023, reaching 1.24 trillion ringgit in just 9 months, compared to 1.17 trillion ringgit for the entire year in 2022.
• 😀 Higher debt does not necessarily signal a financial crisis; there are reasons for the debt increase, including high spending during the COVID-19 crisis and past financial mismanagement.
• 😀 Economist Golin Thai emphasizes that the current government is not solely to blame for the debt rise.
• 😀 Malaysia's economy remains strong, with a broad base and continued access to funding, even with the rise in debt.
• 😀 All three major credit agencies rated Malaysia highly in 2023, indicating that the country's finances are being managed well.
• 😀 The government is committed to improving fiscal policies, with a focus on better debt transparency and public awareness.
• 😀 Since 2018, Malaysia has increased the transparency of its financial disclosures to help the public and policymakers assess the nation's financial health.
• 😀 Malaysia's two-step plan for strengthening its financial position includes growing the economy and improving living standards while keeping finances stable.
• 😀 The government expects to save billions of ringgit through rationalizing subsidies and expanding the sales and service tax to non-essential items.
• 😀 Malaysia's fiscal deficit has decreased from 5% of GDP in 2023 to 4.1% in 2024 and is expected to drop further to 3.8% in 2025, with borrowings also decreasing over the past year.

Q & A

What is the current state of Malaysia's federal debt?

Malaysia's federal debt reached 1.24 trillion ringgit in just 9 months last year, a rise of 66 billion ringgit. This compares to the 1.17 trillion ringgit borrowed for the entire year in 2023.

Is a rise in national debt always a sign of financial trouble?

No, higher debt does not always indicate financial distress. In Malaysia's case, there are specific reasons for the rise, including high spending during the COVID-19 crisis and past financial mismanagement.

Why is the present government not to blame for Malaysia's rising debt?

Economist Golin Thai explains that the current government is not responsible for the rise in debt, as it is largely due to two factors: high spending during the COVID-19 crisis and financial mismanagement linked to the 1MDB scandal.

How does Malaysia's financial management stand in the global context?

Despite rising debt, Malaysia's finances are considered strong. All three major credit agencies awarded the country a high rating, which reflects good management and access to funding.

What steps is the Malaysian government taking to improve its fiscal situation?

The government is introducing better fiscal policies, such as making debt figures more transparent and aiming to improve economic growth while stabilizing finances. It also plans to save money by rationalizing subsidies, starting with diesel and petrol.

How has Malaysia's fiscal transparency improved since 2018?

Since 2018, the Malaysian government has broadened its financial disclosures, revealing previously hidden items to give the public and policymakers a clearer view of the country's financial health.

What is Malaysia's two-step plan to strengthen its financial position?

Malaysia's two-step plan includes: (1) growing the economy and (2) improving living standards while maintaining stable finances.

What role do new tax policies play in Malaysia's fiscal strategy?

The government has expanded the sales and service tax to non-essential items such as imported fruits, private school fees, and private healthcare services, which is expected to bring in additional revenue.

How have recent fiscal reforms impacted Malaysia's debt burden?

According to Imran Yusfu from MIDF Amina, the fiscal reforms are already helping to ease the country's debt burden, as seen in the shrinking fiscal deficit and lower borrowing levels.

What are the key economic indicators that suggest Malaysia's finances are improving?

Malaysia's fiscal deficit has decreased from 5% of GDP in 2023 to 4.1% in 2024, with projections to fall to 3.8% in 2025. Borrowings have also reduced, and the economy grew by 5.1% in 2024, with inflation dropping to 1.8%.