Tuesday, February 27, 2018

Malaysia's Debt is the Stuff of Nightmares

Many Malaysians are alarmed about the state of our finances.

But Prime Minister Najib Razak keeps reassuring us that the country will not go bankrupt! We are financially strong. Nothing to worry about. 

On Thursday, he repeated that refrain.

In fact, the fact that Najib has to reiterate so many times makes me disbelieve him!

Not only that. But he has also vouched that Malaysia's debt is at a manageable level. If you believe him lah. 

Still concerns persist over how much interest is being paid to service the expanding debt and whether borrowing by state firms hides a growing problem. 

Last month, Najib announced Malaysia’s total debt stood at RM685.1 billion in 2017 and this had compared favorably against other countries  because it constituted only 50.9% of the country’s economy, or GDP. 

"Malaysia is better than developed countries such as Singapore at 112%, United Kingdom at 89.3%, Canada at 92.3%", cited Najib proudly as he spieled numbers. 

But he neglected to explain that Singapore spent far less servicing its debt, using only 6.1% of its revenue in 2016. By comparison, Malaysia used 12.5% of its income on interest payments that year. 

This year, Putrajaya is expected to pay RM31 billion in interest, which is more than double the amount paid in 2009 when Najib took over and when the government’s interest burden was less than 9% of its revenue, according to Singapore's Straits TImes report published February 16, 2018. 

This amounts to nearly all the personal income tax the government expects to collect, or more than two-thirds of its takings from the unpopular GST, which it commenced collecting in 2015. 

Malaysia has a single-A-rated status, meaning, we have to borrow at higher rates compared with countries like Singapore, which is triple-A rated – and this poses a further challenge to the government in lowering its debt interest payments. 

Another concern is undisclosed or “off-the books”, government payments to help ailing state firms. 

We know only too well that the government does not record these payments as debt service – they come under obscure items, such as "strategic sector payments" and "other repayments". 

We know the Budget excludes them. Heck, they are not even accountable to Parliament. 

The Singapore paper already reported that this year, these items will cost the government RM8 billion, or 3.3% of revenue. 

Of course, we all know that high public debt, if left unaddressed in the long term, would put the country at risk of default. 

And some media reports had exposed that, going by an annual growth rate of 10.7%, Malaysia's debt could reach RM1 trillion by 2021 on excessive spending. 

This is the stuff of nightmares!

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