The State of the Nation/Economic Report: Why Malaysia’s debt burden is still above RM1 trillion

FEDERAL government debt and liabilities rose to RM1.2569 trillion, or 87.3% of GDP, as at end-September — up 7.5% in the first nine months of the year compared with RM1.1692 trillion as at end-2019.

Apart from the country’s revenue not rising as fast as the increase in expenses — with operating expenditure making up more than 95% of revenue since 2008 — direct federal government debt is rising faster due to the additional debt taken to fund the Covid-19 stimulus and recovery plans that have required RM55 billion worth of direct fiscal injections from the government thus far.

The projected fiscal deficit of RM84.84 billion for Budget 2021 is expected to add to the federal government’s direct debt, which stood at RM874.3 billion, or 60.7% of GDP, as at end-September. That is significantly higher than the RM793 billion, or 52.5% of GDP, as at end-2019 and RM741.05 billion, or 51.2% of GDP, as at end-2018.

Direct federal government debt makes up about 70% of the total debt and liabilities — whose increase is why debt service charges made up 14% (RM32.9 billion) of federal government revenue in 2019 and is estimated to take up 15.4% or RM34.95 billion of the government’s income this year. The amount is expected to rise even further to RM39 billion, or 16.5% of the government’s revenue for 2021, according to data in the Fiscal Outlook 2021 report. This is despite the government’s borrowing cost easing from 4.066% in 2016 to 3.041% as at end-September, according to the report.

Before Covid-19 hit, Malaysia had managed to keep its debt servicing charges below 15% of revenue.