Malaysia’s debts not as high as the RM1 trillion that Guan Eng says

In Malaysia, he said, this was not the case as Malaysia’s debt is not above the RM1 trillion mark. If it were, he added, it would surpass 55% of GDP. “Bank Negara Malaysia (BNM) figures show that this is not the case. It’s just that the way BNM calculates the debt is not the same as the finance minister. BNM follows international standards by looking at direct debts,” he said.

(FMT) – An economist says reintroducing the goods and services tax (GST) would help the government reduce the country’s debt but assures that the debt situation is not yet at worrying levels.

Speaking to FMT, Universiti Tun Abdul Razak’s Barjoyai Bardai said the country’s debt is manageable as long as the government has enough revenue to service the debt.

He said this had been the case even before the change of government.

“The situation only becomes worrying when your gross domestic product (GDP) does not grow and your debt escalates. But as long as the debt does not constitute more than 55% of GDP, we’re fine.”

In Malaysia, he said, this was not the case as Malaysia’s debt is not above the RM1 trillion mark. If it were, he added, it would surpass 55% of GDP.

“Bank Negara Malaysia (BNM) figures show that this is not the case. It’s just that the way BNM calculates the debt is not the same as the finance minister. BNM follows international standards by looking at direct debts,” he said.

Finance Minister Lim Guan Eng was recently criticised by former prime minister Najib Razak for saying that Putrajaya’s rationalisation measures resulted in a 3.9% decline in the debt-to-GDP ratio in 2018, despite an increase in direct government borrowings.

Najib, the former finance minister, said Lim’s calculations were based on the combination of direct debt, government guarantees, lease payments and payments for public-private partnership projects.

He said this method ran counter to those of other governments, where only direct borrowings are used to denote a country’s national debt.

In the long run, Barjoyai said, it was more important to consider the country’s ability to repay its debts and manage its finances, as this is what financial institutions, analysts and credit rating agencies look at.

“It’s more important to focus on things like the budget deficit and ensuring that we are investing in productive assets and initiatives which will ultimately go towards increasing the country’s revenue. This will determine our ability to repay our debts.

“In this sense, reintroducing the GST would help reduce the budget deficit because it would boost the government’s revenue by at least RM20 billion – around 7% of the government’s expenditure.”

He said this should be complemented by more cost-cutting measures and a reduction in wastage.

The Institute for Democracy and Economic Affairs (IDEAS), meanwhile, hailed Putrajaya’s rationalisation efforts, saying they are showing results.

“The increase in the direct government debt by 1% is a consequence of the fall in the tax revenue after the substitution of GST with SST,” said IDEAS CEO Ali Salman, referring to the sales and services tax.

He noted that SST collections had been better than estimated, which he said indicates a positive response to tax reforms.

He, too, said the debt-to-GDP ratio or the stock of government debt is less important than the government’s ability to repay its debts. He added that Putrajaya had been doing well on this front.

“So a small increase in direct government debt is not a major concern. In the long run, the federal government must strive to cut down wasteful expenditure and aim for a balanced budget within this term.

“The Pakatan Harapan government has the ability to deliver a deficit-free budget within the next four years.”