Wednesday, January 10, 2018

Malaysia Drowning in Debts

The Malaysian government's debt has ballooned by an average of 10% a year over the past 10 years due to over-the-top spending. 

This trend can be expected to continue under PM Najib Razak and if and when it continues, it will surely lead to Malaysia being a trillion ringgit in debt within four years – as claimed by The Edge Malaysia

By 2028, this would stack up to RM2 trillion and by 2032, it would swell even more to RM3 trillion. It said as at September last year, the nation's debt had reached RM687.43 billion (51.1% of GDP) from RM266.72 billion in 2007. This, however, excludes the government-guaranteed debt of RM226.88 billion (16.9% of GDP), in which entities like Ministry of Finance Inc-owned 1MDB's debt falls. 

This debt spiral was attributed to operating expenditure outpacing revenue growth at an average of 6% a year for the past 10 years to RM219.91 billion in 2017 from RM123.1 billion in 2007. 

Revenue grew an average of 4.9% a year over the last decade, to RM225.34 billion in 2017 from RM139.9 billion in 2007, leading to a fiscal deficit, defined as when a government spends more than it earns. 

We should get anxious about the debt service charges too. They have risen from RM6.4 billion in 1997 (9.8% of revenue) to RM28.87 billion in 2017 (12.8% of revenue). This year, debt service charges are projected to reach RM30.88 billion, or 13% of government revenue, equivalent to 96% of the estimated RM32.2 billion personal income tax collected and 71% of the estimated RM43.8 billion collected from GST. 

We already know 2018 is going to be challenging for Malaysians. 

Know that about RM75.7 billion of government debt will mature this year – higher than the RM71.3 billion last year, according to AllianceDBS Research economists. 

Tighten your belts, Malaysians, because irrespective of the GE14 outcome – we will be in for a very tough year!

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