MALAYSIANS should not panic about the country’s RM1.5 trillion national debt as it has no impact on economic performance, experts said. 

Universiti Tunku Abdul Rahman economist Wong Chin Yoong said the fact that the national debt was high was disclosed in 2018, but it had no impact on economic performance. 

“Nothing new in this high national debt issue,” Wong told The Malaysian Insight. 

Wong said laymen should have taken note of what institutional investors did when the news of high national debt broke.

“Did we see them worried? Did we see them offloading their shares, bonds or stocks by panic selling?”

He said even when the 1Malaysia Development Bhd (1MDB) financial scandal was blown wide open and there were widespread fears that it would trigger uncertainties over 1MDB-linked bonds, the market did not react. 

“If institutional investors are not worried about the high national debt and there is no panic selling, then there is nothing to worry about.”

The national debt is the sum of all money owed by Putrajaya through the issuance of debt instruments. 

Wong said the reason investors are not worried is because the law states that all funds for administrative or development expenditures must be raised from taxes, not from debt instruments. 

He said the national debt is high as the government is absorbing debts it had written off during the pandemic in order to revitalise the economy. 

“Investors are aware this is only a temporary measure. No one thinks it will have any adverse impact on or lasting damage to the country’s ability to repay the national debt.”

Wong said as 97% of the national debt is in ringgit and they are medium- to long-term debts (more than 10 years), there is no possibility of it triggering a debt crisis. 

“There’ll be no ripple effect. There will be no impact on the economy.”

The harm to the country’s economy is not from the debt, Wong said, but from people having the wrong idea of the nature of the debt, which leads to unnecessary austerity measures. 

“At the moment, there are no drastic measures seen from the government in trimming debt.” 

Wong however said everyone should keep tabs on the government’s fiscal policy to handle the national debt. 

He said if there is a big cut in government spending to divert funds to trim debt, then it would have an impact on the economy. 

Economic analyst Koong Lin Loong said the current national debt ceiling of 65% of Malaysia’s gross domestic product (GDP) is within acceptable parameters. 

Malaysia’s debt limit, by law, was raised in August 2020 to 60% of its GDP. 

In comparison, he said, Japan’s debt exceeds 100% of its GDP. 

“There are other countries in a similar position and they have no problem at all. What is important is to improve the country’s economic performance for sustainable revenue.” 

Koong said even if the country’s national debt reaches 70%, it is still okay. 

On January 17, Prime Minister Anwar Ibrahim said the national debt, including liabilities, had hit RM1.5 trillion, and needs to be urgently addressed. 

Anwar, who is also finance minister, said the debt had exceeded 80% of the GDP and poses a serious impact on the country’s economic recovery. 

“The economy is still seen as uncertain, which is also linked to international geopolitical situations, be it the conflict between Russia and Ukraine or the post-epidemic situation that does not yet reflect the strength of the economy,” he added.

He urged Finance Ministry civil servants to exit their “comfort zones” and shift their approach to the issue to bring about change. 

Anwar said he hopes all civil servants will use their strengths, experience and track records of excellence to improve and save the country. – February 6, 2023.