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This article first appeared in The Edge Malaysia Weekly on July 8, 2019 - July 14, 2019

MALAYSIA’s direct government debt, which stood at RM776.82 billion as at end-March, is set to breach RM800 billion this month but should end below that level by year-end, sources say. It is understood that the increase is temporary, as officials work on a longer-term solution to keep debt in check.

The increase also falls within the targeted fiscal deficit of 3.4% of gross domestic product for this year, numbers that the Ministry of Finance has said it will keep to build confidence in the country’s new fiscal consolidation trajectory. According to Budget 2019, which was tabled last November, 3.4% of GDP works out to RM52.1 billion.

Does this mean former prime minister Datuk Seri Najib Razak had rightly projected via social media posts last Thursday that the national debt had breached the RM800 billion mark and Pakatan Harapan is set to add RM140 billion to the national debt this year?

Not entirely, sources say, although he probably knows more about the country’s debt than most Malaysians — he was finance minister as the direct debt more than doubled from RM306.4 billion at end-2008 to RM705 billion at end-March last year.

That is not counting the debt directly and indirectly guaranteed by the federal government as well as other debt-like commitments that the current administration uncovered when taking over in May last year.

Data trackers would remember how the transfer of RM21.9 billion of civil service housing loans off the balance sheet to the Public Sector Home Financing Board (LPPSA) in January 2016 helped the headline debt-to-GDP ratio fall to 52.7% as at end-2016 from 54.5% in 2015, just shy of the self-imposed 55% ceiling.

When The Edge projected in January last year that federal government debt would reach RM1 trillion by 2021, RM2 trillion by 2028 and RM3 trillion by 2032 — if it were allowed to continue growing at the rate of 10% per annum it did between 2007 and September 2017 — our back-of-the-envelope calculations had shown that direct debt would have reached RM776 billion by end-2018 and RM856 billion by the end of this year.

If direct government debt falls below RM800 billion by year-end, it would be an improvement on what the previous trajectory showed.

Direct federal government debt was RM741.05 billion or 51.2% of GDP (using the new 2015 base) as at end-2018, up RM54.2 billion from RM686.84 billion (50.1% of GDP) as at end-2017.

According to the MoF, total government debt and liabilities stood at RM1.1 trillion or 75.4% as at end-2018. The RM350 billion increase in direct government debt is due to committed government guarantees (9.2% of GDP) and lease payments for PPP and other liabilities (15% of GDP), below the inherited sum of RM400.5 billion as at end-2017.

When announcing the additional sum, the MoF declined to provide details of all the contracts and liabilities, noting that renegotiations involve a number of third parties that may be affected by the newsflow. Given that there has been substantial progress on negotiations, a clear and detailed update on the elusive committed government guarantees, lease payments and liabilities would at least provide data trackers and researchers with room to judge the numbers for themselves.


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