I READ with interest: Malaysia to raise statutory debt ceiling to 70%. It has been lifted twice, supposedly a temporary move.

In 2021, Malaysia’s direct federal government debt rose to 63.4% of GDP (2020: 62.1%). Debt service charges surged 17.8% (ceiling: 15% of revenue).

I have no qualms on the increase compared to Singapore’s 152% in 2020, but our current competitors – Thailand, Vietnam and Indonesia – are all below 50%.

The four main factors of economic growth are land, labour, capital, and entrepreneurship and we are restricted in some. We need to be more creative moving forward.

Investors look at GDP growth rates to allocate their assets. Currently, businesses are experiencing low profits and low share prices, and consumers tend to cut spending.

Our foreign balance of trade may be good but commodity prices may not be as high for too long and our neighbours are becoming more competitive.

Consumer spending is actually boosted by the various stimulus packages and any reduction when the stimulus ceases, will affect GDP.

Disposable income is low with high inflation and high level of household debt.

Our government debt more than tripled from RM306 billion in 2008 to RM1 trillion currently. In just four years, government debt nearly doubled to RM502 billion in 2012.

As of the end of 2021, total debts, including directly guaranteed debts, are about RM1.3 trillion, or about 83.5% of GDP.

Development expenditure was high from 2010 to 2020 and 22% of development expenditure was spent on transport projects in 2020.

It is claimed that investments in transport projects would improve the standard of living and reduce commuting time and traffic congestion.

However, MRT Corp ‘achieved’ close to a RM57 billion loss, five years into operations. Another RM50 billion is expected for the MRT3 Circle Line project.

It will be a government-guaranteed debt under DanaInfra and not counted as part of statutory debt ceiling of 65% but it is additional debt.

During the first decade of the 21st century, the government made more than RM11 billion in profits annually.

However, from 2011 to 2020, it drastically dropped to less than RM2 billion annually. The administration then spent more than the revenue generated. Hence, piling up more debts.

More borrowings are expected to fund the RM400 billion development expenditure for the 12th Malaysia Plan.

This does not augur well if profits continue to drop and relying on more debts to fund operations, and not enough being done to be more productive and competitive internationally.

More debts may lead to macroeconomic implications and negative impact on economic growth.

Based on the government’s debt sustainability analysis (DSA), there is increased risk exposure in the medium term in the event of materialisation of external shocks.

Overall, the Malaysian economic growth has been trending down since 2010.

Next, the budgeting process and implementation.

The World Bank’s 2018 report on Budgeting for Performance in Malaysia, highlighted a few actions that include: timely and accurate reporting on performance by ministries, developing the technical capacity to evaluate performance information and stimulating demand for performance information. 

Meantime, we need to improve the quality of spending and develop a more performance-oriented culture.

The 2021 Open Budget Survey (OBS) results by the International Budget Partnership (IBP) shows that Malaysia has limited level of transparency on its annual budget and ranks at 57th out of 120 countries.

Further, the government reserves the right to submit “supplementary supply bills”.

The Ministry of Finance needs to be more informed on future budget requests and to demand details on how allocation was spent in the previous year.

Summary reports to show programmes that are worthwhile and those that are not should be requested.

We have heard stories how available balance was arbitrarily spent towards year-end since, if there are savings, there will be cuts.

Meantime, government needs to communicate say, quarterly on how, where, for what purpose money is spent and the expected results compared to the budget. There is no need for glossy reports on this.

Government should spend prudently and increase investments in productive assets that will boost growth.

During these trying times we need both careful revenue and expenditure measures. There are many structural weaknesses in public spending that need to be addressed as shown in the Auditor-General’s Report.

Further, two-thirds of the government’s expenditure are on fixed costs such as emoluments, retirement charges and debt service charges.

We need to optimise the utilisation of resources while remaining cognisant of its medium-term financial sustainability.

Strong political will and discipline is crucial and are we willing to uphold the principles of accountability and transparency while ensuring debt sustainability.

Seriously, does anybody care?

What say you…? – July 17, 2022.

* Saleh Mohammed reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.