May 25, 2018
Let’s get the facts straight; Malaysia has financial obligations amounting to RM1.087 trillion ringgit, as at December 31, 2017. This includes Federal Government Debt, Government Guarantees, and lease payments for Public Private Partnership (PPP) projects such as construction of schools, hostels, rental, maintenance of roads, police stations, hospitals, etc. The official Federal Government Debt of RM686.8 billion equates to 50.8% of GDP, and the total debt and liabilities amounting to RM1.087 trillion is 80.3% of GDP.
1 Trillion Ringgit. That is 12 zeroes! Most regular calculators can’t even take 12 zeroes. Where do these numbers come from? What does this mean for us? Is there a need to panic? Well, we’ve broken it down into easy-to-understand points so you can have a clearer picture of what this all means.
One important point to note, government debt and external debt are 2 different debts. Malaysia’s external debt includes external offshore loans, public enterprises and the private sector (that report in to Bank Negara Malaysia). It was reported that our external debt rose to RM883.4 billion as at end-December 2017.
|Malaysia Federal Government Debt and Liabilities|
|Debt and Liabilities||Amount (RM)|
|Official federal government debt|
Bank Negara Malaysia (BNM) breakdown can be found here
(50.8% of GDP)
The committed government guarantees would include entities such Danainfra Nasional Bhd (RM42.2 billion), Govco Holdings Bhd (RM8.8 billion), Prasarana Malaysia Bhd (RM26.6 billion), Malaysia Rail-link Sdn Bhd (RM14.5 billion) as well as an estimated RM38 billion for 1MDB.
(14.6% of GDP)
|Lease payments for public-private partnerships|
The lease commitments which were designed specifically to circumvent the Federal Government guarantee and debt limits. These include including rental, maintenance and other charges for a whole list of “Public Private Partnership” (PPP) projects such as the construction of schools, hostels, roads, police stations, hospitals etc.
(14.9% of GDP)
|Total federal government debt and liabilities|
(80.3% of the GDP)
The debt-to-GDP ratio is a critical metric for evaluating a country’s fiscal health. The internationally accepted norm for a country’s debt-to-GDP ratio is 55% or below. The key points to understanding debt-to-GDP are:
World Public & Private Debt Hits Record USD$164 Trillion <– Click here for more details
Singapore has a 112.2% debt to GDP ratio and Japan’s government debt accounted is at 239% of the country’s GDP!. Australia’s debt is at a low 39.6% of their GDP and the United Kingdom’s government debt is similar to ours at 85.3% to their 2017’s GDP.
A high debt-to-GDP ratio isn’t necessarily bad, as long as a country’s economy is growing. Credit Rating Agencies gave Japan’s debt-to-GDP ratio very little attention, but Greece’s 160% got analysts predicting its collapse. The reasons for these differences vary, but can include:
Common solutions to a high debt-to-GDP ratio:
“Let me emphasize that the fundamentals of the economy remain strong. The financial sector is stable, the banking sector is well-capitalised and there is sufficient liquidity in the market. We believe that with the new administration focused on CAT (competency, accountability and transparency), investor confidence will only be strengthened over time. Together with the commitment of the new Government as well as the support of Malaysians all over the country, we will definitely succeed in saving our country,” – Finance Minister Lim Guan Eng (24 May 2018)
Monetary policy and sovereign debt are complex topics. You can get an advanced degree in this stuff, and still not quite understand it. So unless you yourself are economically savvy, it’s best left to the experts to scrutinise the decisions of government’s new action plan. Life is complicated enough already.