Malaysia’s high interest payments on debt raise concern

  • Malaysia’s debt is at a manageable level, the government says. Yet there are concerns among its critics over how much interest is being paid to service that debt and whether borrowing by state firms hides a growing problem.
  • In Jan 18, Prime Minister Najib Razak said total government borrowings of MYR685.1bn in 2017 compared favourably against other countries, because they formed only 50.9% of Malaysia’s economy, or gross domestic product (GDP).
  • However, Malaysia used 12.5% of its income on interest payments in 2017. When Datuk Seri Najib took over the country’s leadership in 2009, the government’s interest burden was less than 9% of its revenue. That figure has been rising steadily since.
  • This year, the state expects to pay MYR31bn in interest, more than double the amount paid in 2009.
  • 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 goods and services tax it began levying in 2015.
  • Mr Najib’s administration had planned to eliminate the country’s narrowing budget deficit by 2020, but has now deferred the target date to 2023, ostensibly due to low oil prices.
  • Rating agencies have flagged interest payments and low government revenue as a challenge for Malaysia, which is single-A rated. Countries like Singapore are triple-A rated, which means they can borrow at cheaper rates.
  • Another concern is undisclosed government payments to help state firms that would otherwise be insolvent. These companies are not included in the Budget statements, or are “off the books”.
  • Critics are concerned about transparency. It is unclear how many other state firms are being assisted with their debt payments in this way, and for what purpose.
  • If the government’s guarantees and contingent liabilities are added to its total debt, its debt-to-GDP ratio will rise to 69%.

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