HIGH interest payments, low government revenue and off-the-books bailouts of state firms have sparked concerns of a looming budget crisis in Malaysia, despite Prime Minister Najib’s Razak’s assurance that the country’s total borrowings was well under control, said Singapore’s Straits Times.

Last month, Najib said Malaysia’s total debt of RM685.1 billion last year compared favourably against other countries, because they formed only 50.9% of the country’s economy, or gross domestic product (GDP).

“Malaysia is better than developed countries such as Singapore at 112%, United Kingdom at 89.3%, Canada at 92.3%,” Najib had been quoted as saying.

However, he declined to explain that Singapore spent far less servicing their debt, using only 6.1% of its revenue in 2016. By comparison, Malaysia used 12.5% of its income on interest payments that year, according to Finance Ministry statistics.

This year, Putrajaya is expected to pay RM31 billion in interest, more than double the amount paid in 2009 when Najib took over and when the government’s interest burden was less than 9% of its revenue, according to the ST report.

This amounts to nearly all the personal income tax the government expects to collect, or more than two-thirds of its takings from the unpopular goods and services tax (GST), which it began collecting in 2015.

Economists had said Malaysia’s single-A-rated status, which means it has to borrow at higher rates compared with countries like Singapore, which are triple-A rated,  would pose a further challenge to the government in lowering its debt interest payments.

“Weak debt affordability, which we measure as the ratio of interest payments to revenues, has been a credit challenge for Malaysia,” Moody’s analyst Anushka Shah told The Straits Times.

Another concern is undisclosed, or “off-the books”, government payments to help ailing state firms.

The government does not record these payments as debt service, but under obscure items, such as “strategic sector payments” and “other repayments”.  They are not included in the Budget, which means they are not accountable to Parliament.

The Straits Times reported that this year, these items will cost the government RM8 billion, or 3.3% of revenue.

One example of undisclosed payments is the National Higher Education Fund Corporation (PTPTN), which receives government grants worth nearly RM2 billion annually.

National public transport firm Prasarana has also been receiving fresh capital injection from the government while still recording annual losses, which spiked to RM2.1 billion in 2016, in part due to RM644 million in financing costs.

It is unclear how many other state firms are being assisted with their debt payments in this way, and for what purpose.

In 2015, the Finance Ministry revealed it will spend between RM4.76 billion and RM11.62 billion annually to fund “off-balance sheet” companies. These outfits have collectively borrowed RM227 billion, which is guaranteed by the government.

Former United Nations assistant secretary-general Jomo Kwame Sundaram had earlier told The Malaysian Insight that there was an urgent need for greater transparency and accountability in checking the amount of “off-budget” infrastructure spending. 

Jomo said high public debt, if left unaddressed in the long term, would put the country at risk of default. 

“Taking on debt for productive uses is generally desirable. However, much of the recent debt is not being used productively.”

Recent media reports revealed that, going by an annual growth rate of 10.7%, Malaysia’s debt could reach RM1 trillion by 2021 on excessive spending. 

By the same projection, Malaysia’s debt could reach RM2 trillion in 2028 and RM3 trillion in 2032. – February 17, 2018.