THE government’s debt has grown an average of 10% a year over the past 10 years due to excess spending, and this trend could lead to Malaysia being a trillion ringgit in debt within four years, The Edge Malaysia reported yesterday.

It said as at September last year, the nation’s debt had reached RM687.43 billion (51.1% of GDP) from RM266.72 billion in 2007. This, however, excludes the government-guaranteed debt of RM226.88 billion (16.9% of GDP), in which entities like Ministry of Finance Inc-owned 1Malaysia Development Bhd’s debt falls.

This debt spiral was attributed to operating expenditure outpacing revenue growth at an average of 6% a year for the past 10 years to RM219.91 billion in 2017 from RM123.1 billion in 2007. 

Revenue grew an average of 4.9% a year over the last decade, to RM225.34 billion in 2017 from RM139.9 billion in 2007, leading to a budget or fiscal deficits, defined as when a government spends more than it earns.

Spending has doubled from about RM20 billion a year in 2003-2007 to RM34 billion in 2008, RM44 billion in 2009 and RM35.17 billion in 2015. If the trend continues, the debt could reach RM1 trillion by 2021, RM2 trillion by 2028 and RM3 trillion by 2032, the report said.

While the government announced on January 3 that it would need three years to meet its zero-budget deficit, the report cited economists saying this was unlikely to happen in such a short timeframe, especially considering Malaysia’s financial history.

Although Malaysia’s deficit halved from 6.1% of gross domestic product in 2009 to 3% of GDP last year, and is targeted to reduce further to 2.8% in 2018, the actual fiscal deficit amount remains at an all-time high of RM39.79 billion for 2018 compared with 2017’s RM39.89 billion, the report said. 

Debt service charges have risen from RM6.4 billion in 1997 (9.8% of revenue) to RM28.87 billion in 2017 (12.8% of revenue). This year, debt service charges are projected to reach RM30.88 billion, or 13% of government revenue, equivalent to 96% of the estimated RM32.2 billion personal income tax collected and 71% of the estimated RM43.8 billion collected from the goods and services tax (GST).

About RM75.7 billion of government debt will mature this year, higher than the RM71.3 billion last year, according to AllianceDBS Research economists. 

“Endorsements by global sovereign debt rating agencies mean there is no immediate worry that Malaysia will not be able to honour its debt obligations.

“Still, the maturing debt papers could spell new borrowings, likely at higher cost, with interest rates ‘normalising’ across the globe. Bank Negara Malaysia too is widely expected to raise its key overnight policy rate by 25 basis points this year,” the weekly wrote.

As at end-2016, debt with direct government guarantees stood at RM187.23 billion, of which RM5 billion was from 1MDB and RM699 million from TRX City Sdn Bhd. According to the weekly, RM4 billion was also transferred from its former subsidiary SRC International Sdn Bhd to the MoF in 2012.

A lot of infrastructure spending has also been taken off the federal government budget, “which reduces transparency and accountability, not just to Parliament, but also to the public”, economist Professor Jomo Kwame Sundaram told the weekly. – January 7, 2018.