Malaysia’s debt-to-GDP ratio is projected to increase if there are no major fiscal reforms. (This is according to RHB Research group chief economist Sailesh K. Jha). The annual debt/GDP ratio, including general government debt and contingent liabilities, is estimated to reach 109% in 2025 and 116% in 2026, up from 81% in 2022. The increasing debt-to-GDP ratio is driven by rising contingent liabilities, falling federal government tax effort ratio since 2012, and rising federal government expenditures such as subsidies, emoluments, and development expenditures since 2017.
The declining non-petroleum related revenues share of total revenues since 2017, may lead to a worse-case scenario where the debt-to-GDP ratio could reach around 145% of GDP in 2026. Significant tax enhancement and expenditure reduction policies by 2024 are needed to address this issue. GST is not the solution. Fiscal reforms that prioritise expenditure rationalisation, revenue enhancement, and debt management must be implemented.
Source:https://themalaysianreserve.com
A major drop in contingent liabilities, subsidies, emoluments, or development expenditures is necessary to ensure that the debt-to-GDP ratio is on a declining trend from 2025
Malaysia cannot grow itself out of its debt problem, and GDP growth has been driven primarily by labour force expansion and capital accumulation. These are both unsustainable sources of growth in the long run. Malaysia has four ministries responsible for the economy – Finance; Economy; Investment, Trade and Industry; and Domestic Trade and Cost of Living Ministries. Isn’t there an overlap of functions? And all these amid poor global outlook, drop in trade surplus, crash of the ringgit, increase in poverty and income inequality amongst others. Business outlook remains cautious with political stability under pressure. The PM has his hands full and has promised resolution of water woes in Kelantan and Sabah, energy in Sabah and other mundane things like potholes on major roads.
Structural weaknesses in the economy has to be addressed by investing in human capital development, enhancing digital infrastructure, and diversifying the economic base, enhancing food production, improving FDI and DDI landscape and removing outdated policies that restrain growth and revenue flows. Unless we are prepared to address this seriously with immediate and long-term measures, we will be unwittingly following the U.S. Congress in raising debt ceiling.
Reference:
Malaysia’s debt-to-GDP ratio to reach alarming heights without significant fiscal reforms, Rupinder Singh, The Malaysian Reserve, 12 May 2023
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