The Government May Incur RM1 Trillion Debt By 2021 Due To Excess Spending

The government debt has increased 10% every year, over the past decade.

Cover image via AFP via South China Morning Post

A recent report by The Edge Malaysia revealed that the Malaysian government may incur a debt of RM1 trillion by 2021 due to excess spending

Prime Minister Datuk Seri Najib Razak pictured before the tabling of Budget 2018 last year.

Image via Reuters

The Edge Malaysia published an article this week titled, 'The debt spiralwhat's on the books, contingent liabilities, and off-balance sheet items' that raised the alarm on the situation of the nation's growing debt, which saw an increase of 10% every year, over the past 10 years. As of September 2017, the number stands at RM687.43 billion, a RM420.71 billion increase from 2007.

The Edge Malaysia's senior news editor Cindy Yeap says this is largely due to the fact that the government's operating expenditure grew an average of 6% a year in the past 10 years, from RM123.10 billion in 2007 to RM219.91 billion in 2017.

The operating expenditure exceeded Malaysia's revenue which grew at an average of 4.9% a year, over the past decade, from RM139.9 billion in 2007 to RM225.34 billion last year

This situation has led to a budget or fiscal deficit which happens when a government spends more than the revenue it generates. Deficit is not the same as debt, which is the accumulation of yearly deficits.

The government's excess spending doubled from around RM20 billion a year from 2003 until 2007 to RM34 billion in 2008. It hiked up to RM44 billion in 2009 and decreased six years later to RM35.17 billion in 2015.

The Edge predicts that if the federal government debt continues to increase at this rate, it could go all the way up to RM1 trillion in 2021, RM2 trillion in 2028, and RM3 trillion by 2032

Adding to this, the country's debt service charges have increased from RM6.4 billion in 1997 (9.8% of the revenue) to RM12.9 billion (9.2% of the revenue) in 2007 and RM28.87 billion in 2017 (12.8% of the revenue). 

It is also predicted that the debt service charges for the year 2018 will reach RM30.88 billion, that's around 13% of the government revenue. 

The weekly noted that between 2018 and 2022, RM363.7 billion (51.9% of the total debt) is set to mature. This could mean new borrowings, which may be at a higher cost as interest rates are normalising around the world. 

"Endorsements by global sovereign debt rating agencies mean that there is no immediate worry that Malaysia will not be able to honour its debt obligations," assured The Edge. 

At the end of 2016, debt with direct government guarantees was at RM187.23 billion. RM5 billion of it was from 1MDB and RM699 million was from TRX City Sdn Bhd (formerly known as 1MDB Real Estate Sdn Bhd).

"What's more, a lot of infrastructure spending has been taken off the federal government budget, which reduces transparency and accountability, not just to the Parliament, but also to the public," economist Professor Jomo Kwame Sundaram told The Edge.  

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