KUALA LUMPUR — Although the recent Auditor-General’s report pointed to increasing federal debt now at RM1.173 trillion, economists have pointed out that it is actually common for governments to borrow to fund expenditures.
Economist Calvin Cheng said government spending is both expected and desirable and is meant for productive activities such as the development of infrastructure and human capital.
“Increases in government debt are also normal for any country running a fiscal deficit,” Cheng told Scoop when asked to comment on the Auditor-General’s Report 3/2024 released recently.
Nevertheless, Cheng also suggested that it would be prudent to monitor the rising debt-to-GDP ratio which is just under 65%, at 64.3%, given that debt service costs have also increased in turn.
This, Cheng explained, would result in Putrajaya having to spend more on paying interest on debt.
“If this level increases steadily over the next few years, then we may be more concerned about fiscal space,” said Cheng, a fellow at the Institute of Strategic and International Studies’ (ISIS) economics, trade, and regional integration division.
He is of the view that the government’s debt is not a major concern given that it is overwhelmingly in the local currency and is owed to domestic entities such as the Employer’s Provident Fund (EPF) and Retirement Fund Inc (KWAP).
“That said, there are still principles for prudent debt management to ensure fiscal sustainability.
“In the end, we want to ensure it does not grow consistently faster than GDP growth and revenue – and that debt financing risks remain manageable,” Cheng added.
The Auditor-General’s Report 3/2024 revealed that federal government debt was at RM1.173 trillion in 2023, an increase of RM92.918 billion or 8.6% compared to RM1.080 trillion in 2022.
Domestic loans amounted to RM1.143 trillion or 97.5% of the federal debt, and the report suggested more caution with new borrowings.
Meanwhile, Universiti Tun Abdul Razak economist Barjoyai Bardai echoed Cheng’s points and mentioned that the government’s RM1.173 trillion debt is well within the limit approved by Parliament which is 65% of the national GDP.
While not a major issue, Barjoyai said it may lead to some inflation concerns.
“There are those who would say that if the government borrows more, it means Bank Negara Malaysia (BNM) would have to print more money,” Barjoyai told Scoop.
When there is an increased supply of ringgit in the market, Barjoyai explained, it would result in demand that the private sector would not be able to match by increasing production.
In some countries, he added, governments print money to stimulate spending and development, although this may cause inflationary pressure.
“(But) Malaysia’s inflation rate is 1.9% which is well under control. So the government should not worry,” Barjoyai added. – October 16, 2024