KUALA LUMPUR (Oct 10): Malaysia’s debt service charges (DSC) are expected to rise at a slower pace of 7.6% in 2025 to RM54.3 billion, according to the Ministry of Finance’s Fiscal Outlook 2026 report.
This compares with a 9% increase in 2024, with DSC projected to account for 16.3% of total government revenue, up from 15.6% in 2024.
The increase reflects the cumulative effect of elevated borrowing during the pandemic years and continued deficit financing, although the ministry noted that the overall debt servicing burden remains within prudent levels.
DSC, which measures interest and principal payments on federal government debt, has been on an upward trend since 2019, driven largely by higher outstanding debt and interest rate normalisation.
The report said the government’s debt structure remains resilient to refinancing and interest rate risks, supported by a long average maturity profile of 9.6 years and a funding base concentrated in fixed-rate domestic instruments.
Malaysia’s weighted average cost of borrowing for outstanding domestic debt stood at 4.11% as at June 2025, compared with 4.12% as at end-2024.
Meanwhile, the weighted average cost of borrowing (WACB) fell to 3.79% for the January–August 2025 period, down from 3.9% in 2024, amid renewed demand for government bonds as global interest rates eased.
Lower US Federal Reserve rates and sustained foreign inflows into Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) contributed to the improvement, the ministry said.
As at June 2025, federal government debt stood at RM1.304 trillion, or 64.7% of GDP, of which 98.3% comprised domestic borrowings, while offshore borrowings declined to 1.7% from 2.4% in the first half of 2024.
The ministry said this continued reliance on local funding — dominated by the Employees Provident Fund (EPF), local banks, insurers, and Bank Negara Malaysia — provides a stable and predictable financing base, insulating fiscal operations from exchange rate volatility and shifts in global liquidity conditions.
The Finance Ministry said the government remains committed to managing debt prudently, with strategies focused on extending debt maturities, diversifying the investor base, and strengthening the domestic bond market.
It added that efforts under the Public Finance and Fiscal Responsibility Act 2023 (Act 850) will ensure that borrowing costs remain sustainable over the long term, while fiscal consolidation continues to reduce reliance on new issuances.