Malaysian government’s debt to approach RM1 trillion by 2020
Pak Sako, CPI
This is the second part of a three-part CPI series on Malaysian debt. The first part, entitled, ‘Investigate Malaysia’s debts now’ , surveyed the overall debt situation.
This part examines the trend in government debt. The upcoming part will concern Malaysia’s total debt.
Statistics reveal that in the last 15 years, the Malaysian government’s debt increased at an unprecedented rate.
The graph below shows the statistics for the government’s combined domestic and foreign debts from 1991 till the present. Forecasts are provided up to the year 2017.
Here we ignore private debt, even though it adds to the government’s debt burden, because a portion of private debt is publicly guaranteed. We also ignore other unrevealed debts.
What the statistics are saying
During the 1990s, the reported debt level was mostly flat. It declined slightly towards the end of the decade. At the close of 1991 it was RM99 billion, and by the end of 1996 it was close to 91 billion.
After 1997, the government’s debt began to steadily climb until 2007. In those 10 years, the debt level rose from RM91billion to RM274 billion. This is an increase of RM183 billion, or an annual average addition of debt of RM18.3 billion.
From 2008 onwards, the borrowings escalated exponentially.
In 2008 alone, an extra RM43 billion of debt was amassed. From RM274 billion at the start of that year, the debt level rose to about RM502 billion by the end of 2012 — an increase of RM228 billion in five years. The average increase in debt in this period was RM45.6 billion per year.
The IMF forecast the debt level for the years 2013 to 2017. The annual increase in debt is predicted to be higher, at a yearly RM55.4 billion. The projected debt level for 2017 is RM779 billion.
This assumes that there is still plenty of domestic funds available to carry the borrowing up to that level (the lion’s share of government debt, is after all, domestic debt).
If not, debt would have to be secured from external sources.
The assumption is also that the government will continue to borrow. This is likely to be true. As we have seen, the trend suggests that the government’s appetite for debt has been growing, not abating.
The annual increases in debt are substantial sums: a single year’s borrowing can dwarf a decade’s worth of inward foreign direct investment.
There has been no sign of the debt accumulation reducing or levelling out since the year of the East Asian economic crisis of 1997.
Large government deficits were first incurred in the aftermath of this crisis. Then-prime minister Mahathir Mohamad justified this as part of government spending in commercial enterprises to stimulate the economy.
In reality, the loan proceeds were allegedly used for questionable purposes, such as to fund large-scale projects awarded to crony capitalists and to bail out their failing companies.
The federal government’s borrowing shifted into higher gear from 2008, the year the Barisan National coalition lost its two-thirds parliamentary majority.
The deficit expenditures have been justified as a short-term tool. But they have continued for almost a decade and a half; they have become a permanent feature of the government’s financial policy.
The government’s financial imprudence is therefore a primary cause of the country’s indebtedness.
