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%.

External Link : http://www.straitstimes.com/asia/se-asia/malaysias-high-interest-payments-on-debt-raise-concern