(Printed in The Edge on February 13th, 2023)
The announcement recently that Malaysia’s national debt broke RM1.5 trillion, of which RM300 billion were “Commitments”, sent shivers up the finance sector’s spine. Indeed, the specter of having to manage debt levels that high, at 80% of GDP (Gross Domestic Product) as mentioned by the Prime Minister, at a time of a global economic slowdown and higher worldwide interest rates plus when Malaysia’s governmental revenue is widely expected to decline, adds to the worries of a national budget that is already nearly half-consumed by emoluments and pensions to the civil servants, and a substantial 11.7% of it taken by expenses on national debt (per the 2020 national budget).
The growth of the national debt level over the past 10 years has been thus:
Chart 1 Malaysian Total Debt Levels By Year
Source: MoF Malaysia, respective years
One is reminded of how the 6th and 7th Prime Ministers railed against this kind of debt accumulation in the past; national debt was then less than Rm1 trillion. There are safeguards that nominally limit how much borrowing is allowed by the government. It is supposed to be at 65% of GDP. This excerpt from the Ministry of Finance, Malaysia’s annual report is instructive:
Table 1 Limits to national borrowings by financial instrument
It is no secret that Malaysia’s national budget, split into Operating Expenditure (OPEX) and Development Expenditure (DEVEX), is funded by tax revenues, duties, and borrowings principally. There is a critical fault in the structure of the national budget, though, that DEVEX is funded in its entirety by borrowings, less any Current Surpluses (excess of revenue over OPEX) and other payments received that is applied against contemporary debt.
Chart 2 Annual Malaysian Budget DEVEX vs. Net Borrowing for Budgets p.a. 2011 to 2020
Source: MoF Malaysia, respective years
As one can see above, the difference between the amount of budgeted DEVEX spending and the amount that must be borrowed to fund it is quite similar.
Happily, we find that the Current Surplus has been positive in the years 2011 to 2020 as per below, lessening ever so slightly the amount that must be borrowed for the annual budget:
Table 2 Malaysian Federal Government Current Surplus 2011 to 2020
| Year | Current Surplus (RM Million) |
| 2011 | 2,825 |
| 2012 | 2,376 |
| 2013 | 2,100 |
| 2014 | 3,982 |
| 2015 | 2,091 |
| 2016 | 5,469 |
| 2017 | 4,926 |
| 2018 | 1,922 |
| 2019 | 1,040 |
| 2020 | 3,510 |
Source: Ministry of Finance, Malaysia, respective years.
Nonetheless, the amount of DEVEX-sourced borrowings in the National Debt amount is quite substantial, as one can see below:
Chart 3 Cumulative Net Annual Borrowing For DEVEX In The Annual Budget vs. Total National Debt, 2011 to 2020
Source: MoF Malaysia Reports, respective years
All this, of course, means that the amount of debt that the country incurs just grows every budget year. The chart above is 10-year cumulative chart where budget-sourced borrowing is concerned. If one stretches it back to the first year when such borrowing occurred, then the proportion of total debt would be doubtlessly larger.
However the notion that DEVEX should be totally borrowed started eons ago, this practice is clearly dangerous at this point of time and unsustainable. It needs to end. DEVEX must be funded by a combination of tax revenue and a smaller portion of it by borrowings, just like any other country’s budget is.
The amount of national debt must be brought down as quickly as possible to a more comfortable level, back to the legal limit of 65% of GDP in any one year and payments due to debt in the annual budget must be limited to, say, arbitrarily, 8% of the national budget, for both interest and principal repayments.
Not taking any action thenceforth would certainly doom the country to becoming a banana republic in the future, something many external parties have warned us about. How close are we already? Goreng pisang, anyone?