Malaysia's debt climbs to RM 407 billion on the back of massive spending spree

From the Singapore Business Times, October 25, 2011
By S. Jayasankaran

Malaysia's national debt rose by 12.3 per cent to over RM 407 billion in 2010 - making it the second year running that the debt to GDP stood at over 50 per cent.

The Auditor-General released the figures in his annual report which was revealed yesterday in Parliament. And while the report acknowledged that Malaysia's gross domestic product (GDP) grew by 7.2 per cent in 2010, it also said that the government owed 53.1 per cent of GDP, slightly down from 53.7 per cent the previous year.

The ratio is a reflection of a spending spree the country went on to mitigate the effects of the 2009 global financial crisis.

At its peak that year, Malaysia's budget deficit rose to 7.6 per cent of GDP, one of the highest in history. It's since come down to 5.4 per cent of GDP and the government projects that it will decline further to 4.7 per cent of GDP next year.

Such has been the pace in debt accumulation that over the space of six years, total federal government debt has actually doubled since 2004. "This rising trend should be a cause for concern," wrote economic commentator Anil Netto in a recent blog posting.

Meanwhile, the country's debt position is coming close to breaching legislative levels set a long time ago by Parliament.

According to the Auditor-General's report, public debt from domestic sources rose by RM 41.76 billion to RM 390.36 billion last year while loans from foreign sources rose to RM 16.75 billion, up RM 2.96 billion.

But the Loan (Local) and Government Investment Act sets a domestic debt ceiling of 55 per cent (of GDP) for the government while the External Loans Act 1963 limits the foreign loan exposure to RM 35 billion.

According to the report, the domestic debt level at the end of 2010 stood at 51 per cent of GDP.

The danger for the government is another recession stemming from the West's economic woes.

The reason: it simply does not have the resources to spend its way out of it like it did in 2009. On top of that, subsidies on fuel and other essentials like cooking oil, milk, rice and sugar remain intractably high at RM 32 billion this year.

Unfortunately, the government's debt position keeps rising with no end, seemingly, in sight.

According to the country's central bank, the national debt as of June 30, 2011 had risen to RM 437 billion with domestic debt amounting to RM 421 billion and foreign debt at RM 16 billion.



Anil Netto's blog can be found here:

http://anilnetto.com/governance/accountability/govt-debt-balloons-to-rm362b/

Art Harun's here:

http://art-harun.blogspot.com/2011/08/money-matters.html

And on this blog:

http://cgmalaysia.blogspot.com/2011/10/15th-budget-deficit-in-row.html

15th Budget Deficit in a row

Much has been written already about the new budget, I won't repeat what has been said. There is just one item (a major one) that I don't like at all, for the 15th time in a row there will be a budget deficit:

1998: Deficit
1999: Deficit
2000: Deficit
2001: Deficit
2002: Deficit
2003: Deficit
2004: Deficit
2005: Deficit
2006: Deficit
2007: Deficit
2008: Deficit
2009: Deficit
2010: Deficit
2011: Deficit
2012: Deficit

It started in 1998, which was understandable with the huge Asian crisis going on, in 2000/1 there was the internet bubble, in 2003 there was SARS and in 2008/9 the Western financial crisis. But all the years in between, why was there a need for deficits, economic growth was fine? About 40% of the government revenue in Malaysia is from oil and gas, and social services are much less than in Western countries. A country like Malaysia should not have a structural deficit, in the contrary, being so lucky with having oil and gas.

According to this article:

http://www.efnasia.org/index.php?option=com_content&view=article&id=304:tough-but-necessary-actions-needed-in-budget-2012&catid=1:latest-news&Itemid=4

Malaysia's debt is currently about RM 362,000,000,000 (362 Billion), that is close to RM 13,000 per Malaysian citizen or RM 65,000 per family of five. These are huge numbers and have to be paid back somewhere in the future.