KUALA LUMPUR (Oct 13): The federal government's debt is projected to be around 64% of GDP as at end-2024 — only 1% away from the 65% statutory debt limit, according to the Ministry of Finance (MOF) in its Fiscal Outlook and Federal Government Revenue Estimates Report.

At 64% of GDP, the federal government debt is estimated to be RM1.263 trillion, higher than RM1.147 trillion (62%) in 2023 and RM1.079 trillion (60.3%) in 2022.

The report said the increase in the federal government debt is for the financing of strategic development projects under the 12th Malaysia Plan, among others, the flood mitigation programme, the Central Spine Road (CSR), the Pan Borneo Sabah and Sarawak highways, the Rapid Transit System Link (RTS Link) project between Johor Bahru and Singapore as well as the National Fiberisation and Connectivity Plan (Jendela).

Nonetheless, the MOF stressed that the government is committed towards fiscal consolidation through bold fiscal reform initiatives.

"The government remains committed to reducing debt-to-GDP ratio by upholding the Medium-Term Fiscal Framework strategies accompanied by the proposed Public Finance and Fiscal Responsibility Act.

"In addition, debt management continues to be guided by several principles, among others, adhering to stipulated debt rules and giving priority to domestic-sourced financing with the ultimate goals of reducing government indebtedness level and widening fiscal space," said the report.

As at end-August 2023, total federal government debt stood at RM1.147 trillion. The saving grace is that the federal government debts are largely denominated in ringgit, at a share of 97.4% of the total debt.

Resident holdings of the federal government debts as at end-June 2023 amounted to RM863.4 billion, representing 75.4% of the total debt, the report said. Non-resident holdings were at RM281.6 billion or 24.6% of the total debt.

Resident holders include various entities, with banking institutions holding the biggest share at 30.5%, followed by the Employees Provident Fund at 24.8%. Meanwhile, insurance companies held 4.9%, followed by Bank Negara Malaysia (4.4%), the Retirement Fund Inc (KWAP)(3%), development financial institutions (2.2%), and others (5.6%).

The review estimates that the federal government's debt service charges (DSC) will increase to RM49.8 billion, 8% more than RM46.1 billion in 2023.

The DSC of RM49.8 billion is equivalent to 16.4% of the federal government's total operating expenditure in 2024 — the third biggest item after emoluments (RM95.64 billion, 31.5%), and subsidies and social assistance (RM52.75 billion, 17.4%).

The DSC is primarily for domestic issuance estimated at RM45.3 billion, while the remaining RM800 million is for offshore borrowings.

Click here to read more about the Economic Report 2023/2024.