Economists raise concern over RM1.5t govt debt

“The nation’s debt had gone up by RM600 billion over the last three years. The previous government had used the money for subsidies and grants.”

(The Sun Daily) – The government spends about RM45 billion a year to repay borrowings, which could have been put to better use, said Universiti Tun Abdul Razak economist Dr Barjoyai Bardai.

He said with the country’s debt level, which stands at RM1.5 trillion, there are less funds to spend on national development projects.

“The only consolation about the high debt level is that 90% of the borrowing is from the Employees Provident Fund (EPF) and financial institutions. On the brighter side, the money will be returned to EPF contributors and investors in the form of dividends.

“The nation’s debt had gone up by RM600 billion over the last three years. The previous government had used the money for subsidies and grants.”

Barjoyai said about RM80 billion is being spent a year on subsidies and grants and this is unsustainable in the long term.

He added that the RM600 billion debt that has been added to the government debt burden in the last three years is about the same amount it had borrowed over the last 20 years.

The government needs to reduce the levels of subsidies but this cannot be done immediately as it will cause higher inflation, Barjoyai said, adding that the government is now in a Catch-22 situation.

“It is important for the government to find other sources of revenue. For example, the removal of electricity subsidies for the T20 will likely cause the price of some goods to go up.

“For now, the country must live with the fact that the government will have to continue providing subsidies even though it is unsustainable.

“What is more worrying is the level of personal debt which stands in the region of 80%. Although the majority of it is in the form of housing loans, it still takes a big chunk out of their income,” Barjoyai said.

In 2021, household debt stood at about RM1.17 trillion, which is higher than the federal government’s debt then.

Universiti Utara Malaysia economics professor Dr K. Kuperan Viswanathan said the high government debt level is down to the fact that over the last 25 years, the government has been spending more than it earns.

He said the debt level has been creeping up slowly and the government needs to find ways to rein in its spending to help reduce the debt level.

“If the government continues to go on a spending spree, the country could end up in serious trouble. It could get harder for the government to borrow. Even if it was able to borrow, it would be at a high interest rate.

“There is also the possibility of the currency becoming weak because of the high levels of debt. At the moment, to service debts and government expenditure, about 80% of gross domestic product (GDP) is used for this and only 20% goes towards development spending.

“This does not bode well for the nation and this kind of GDP usage cannot go on for the long term.”

Kuperan said it is understandable that every government wants to help the
lower-income group whenever there is a problem because they will be the first ones to feel the pinch.

He called on the government to find ways to deal with the high level of debt while controlling spending.