Malaysia’s
national debt is the sum of all money owed by the central government of
Malaysia through the issue of debt instruments. Obligations that are not
represented by bonds or bills, such as pension obligations are not included in
the national debt figure, and neither are the debts accumulated by the states
of Malaysia.
The
table below explains what is included in the national debt figure and what
isn’t:
The
compulsory national pension scheme, the Employees Provident Fund, is managed by
the Ministry of Finance, for accounting purposes. It is regarded as an
independent entity and its assets and liabilities are not included on the
nation’s balance sheet. Government guarantees to private companies have become
a major political issue in Malaysia during 2018. These were not counted as part
of the national debt.
Who
manages Malaysia’s national debt?
The
central bank of the country, Bank Negara Malaysia, states that the government,
the central bank itself, and other agencies of public service have the right to
raise debt through issuing bonds and notes. All the debt raised by the
government is the responsibility of the Treasury department of the Ministry of
Finance. This debt is undoubtedly part of the national debt. The central bank
is responsible for the country’s money supply and so it would only raise debt
in order to support its monetary policy stance. This debt does not count as
part of the national debt. The debt raised by government agencies is usually
made in the form of Public Private Partnerships or leasing agreements. This
debt is controversial and is subject to a “hot” debate within the media in the
country.
What
is the government’s credit limit?
The
central government of Malaysia has a debt limit imposed on it by a
parliamentary law. This limit is expressed as a percentage of GDP. The level of
the limit is at 55% of GDP. There are two problems with this limit. The first
is that it was created by the government itself. So, it is self-imposed. A
second problem with the debt limit is that it is framed in terms of “public
debt.” Governments can argue that the debt of the central government is the
same as the national debt and public debt, in that case, could go all the way
up to that 55% limit. Others claim that “public debt” should include all debt
owed by the public sector, including the state governments and any
public-sector government agencies.
The
country’s official national debt in 2018 was at 50.8% of GDP, and so
comfortably below the debt limit. However, after accounting for all other debt
obligations, the PH government declared that the public debt could be anything
up to 80.3% of GDP. This is a good example of why those interested in the
national debt figures should examine the accounts of the government that they
are investigating. There are a lot of grey areas when compiling national debt
figures and not every country plays by the same rules. In the interests of full
disclosure, the government of Prime Minister Mahathir Mohamad explained that
there were two “off budget” debt categories in the national account that,
although not previously recognized as part of the national debt were
obligations and should be accounted for in the central government’s budget.
The
central bank of Malaysia still records the national debt figure as being that
core 50.8% figure. However, the then national government declared that debts
guaranteed by the BN government should be included and so the national debt
figure should be 65.4%. Despite publicizing the lease and public-private
partnership agreements as obligations on the government’s account, these
obligations were not declared to be part of the national debt. Those agreements
represent a figure that is equal to 14.9% of GDP.
What
is Malaysia’s correct debt to GDP figure?
According
to the central bank of Malaysia, the country’s national debt to GDP ratio is
50.8%. According to the PH government, that ratio is 65.4%. The country’s media
and some politicians and economists prefer the figure of 80.3%. The credit
ratings agency, Moody’s is sticking with the 50.8% figure, which is good news
for policymakers. The CIA World Factbook states a debt to GDP ratio of 54.2%
for Malaysia. The IMF uses a debt to GDP ratio of 53.6% for Malaysia The World
Bank only has that up to the end of 2016 and puts Malaysia’s national debt at
52.16% of GDP So, the question of how much Malaysia’s national debt is relies
on who you ask and how up to date their figures are.
Who
buys Malaysian government debt?
The
Malaysian government only allows registered principal dealers to buy primary
issues of government bonds direct from the Treasury. However, these dealers act
as market makers and either resell those bonds onto the secondary market or
organize buyers for their tranche before they bid for it. According to the Bank
Negara Malaysia, the major buyers of Malaysian government bonds in order of
activity are:
1. The Employees Provident Fund (EPF)
2.
Pension
funds
3.
Unit
trusts
4.
Insurance
companies
5.
Asset
management companies
6.
Discount
houses
7. Commercial banks
Domestic
institutions hold 96.7% of government debt, which is the equivalent of 49.2% of
GDP. Overseas traders hold 3.3% of Malaysia’s national debt, which is 1.7% of
GDP.
If
GDP is at RM1.36 trillion, then the 50.8% figure will suggest a debt level of RM686.8
billion. The current stimulus packages suggest an infusion of RM35 billion
which may take national debt to 53.1%. That leaves a balance of RM24.8 billion
that could be raised, going forward if GDP does not decline from 2018/19.
Otherwise, the breach needs to be approved by Parliament which may prove
“tricky” for the current PN government. Hopefully, the present Government has
the sense to persuade others in the Opposition to allow for a “temporary”
breach of the 55% limit because of the Covid situation. But that does not mean
the stimulus or cash infusion should be RM95 billion or RM150 billion as
suggested by some think tanks/economists. Prudence is still better than valour!
Reference:
1. Malaysia’s Debt Clock: The Prime Minster
Admits “Off Budget” Debt Categories, https://commodity.com
2.
Malaysia’s
debts and liabilities soar past trillion ringgit mark, 25 May 2018, The Star
3. Funding the fight against Covid-19, 28
Mar 2020, The Star
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