By Yow Hong Chieh
The Malaysian Insider
Jan 10, 2012
KUALA LUMPUR, Jan 10 — Malaysia’s national debt will hit 100 per cent of the Gross Domestic Product (GDP) by 2019 should Putrajaya continue to borrow more than it earns, economists say.
Malaysian Institute of Economic Research (MIER) distinguished fellow Mohd Ariff Abdul Kareem warned that the federal government revenue was growing too slowly to keep up with its borrowings, which hit 53.1 per cent of GDP in 2010.
He said while the current size of government debt relative to GDP was not troubling, the pace of its growth in recent years was cause for concern.
Debt-to-GDP ratio jumped from 41.4 per cent in 2008 to 53.1 per cent in 2010 while government debt grew 14.6 per cent in 2008 and 18.3 per cent in 2009, far outpacing the country’s GDP growth, Ariff noted.
“If nothing is done to reverse the current trends in government expenditures and revenues, extrapolation suggests that Malaysia’s national debt will explode to 100 per cent of GDP by 2019.
“Should the debt growth gather speed, this can happen sooner,” he told The Malaysian Insider via e-mail.
Ariff pointed out that while government spending on fiscal stimulus packages in the face of global financial crises has mostly translated into infrastructure development, there was a need to trim fat from the bloated civil service, which formed a significant chunk of Putrajaya’s operating expenditure.
He said emoluments to Malaysia’s civil service — the largest per capita in the Asia-Pacific according to the OECD — have risen from 23.3 per cent of the operating budget in 2007 to 33.1 per cent in 2010, rising to 41.6 per cent in 2010 if pensions were included.
This was a major financial burden on the government, as were the cost overruns, wastages and leakages exposed annually by the Auditor-General, the professor for international finance at the International Centre for Education in Islamic Finance (INCEIF) said.
“There is certainly a need to rein in government operating expenditure, which must include a downsizing of the bloated civil service, to bring government procurements under greater scrutiny with increased transparency and accountability and to undertake serious tax reforms to raise more revenue,” Ariff added.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng said there needs to be political will on the part of Putrajaya to execute its Government Transformation Plan (GTP), which is partly aimed at stopping the fiscal deficit from rising further.
“We must follow it religiously because [the fiscal deficit] is currently the main vulnerability of Malaysia’s economy,” he said.
Yeah said Malaysia would be on the right track to keeping its fiscal deficit in check in the medium to long term if Putrajaya remained committed to this plan but cautioned that this was premised on an annual GDP growth of five to six per cent.
This was because any slowdown in the economy would lead to lower wages and higher unemployment, which would in turn negatively impact tax revenues, he said.
“There is a close correlation between growth and government revenue,” he said, noting that for every one per cent decrease in GDP growth, tax collection will drop by 0.8 per cent.
“During a slowdown we can expect government fiscal deficit to actually widen.”
Yeah added that the government does not have long to consolidate its fiscal position as income from the oil and gas sector, which makes up about 40 per cent of total government revenue, was expected to fall over the next five to 10 years as Malaysia’s oil reserves dwindle.
#1 by cseng on Wednesday, 11 January 2012 - 11:40 am
Amount that you borrow is only indicative, whether you bankrupt or not, depend what and how you use that money.
M’sia gone thru few types of capital turns, in the seveties during commodity capital, tycoons were made from plantation, mining. Eighties/nineties, man-made capital, we have tycoon coming from industries, construction sector. Twenties , few tycoon coming from electronic/telecom capital. Comes this Twenty ones, all tycoon coming from politic arena. So our economy is moving into political capital now. This is where all capital turning disconnected… invest your child’s future send them into politic.
This is how Korean made it, Hyundai, Samsung. Their economy gone thru the same capital turns, but they tycoon and industries keep investing in future capital. Samsung coming from construction, moving into next capital and lead into next coming capital. They are among the best/biggest chip fabrication.
#2 by Jeffrey on Wednesday, 11 January 2012 - 12:01 pm
It’s not just an issue of how much growth of national debt (from spendthrift ways) relative to GDP (when income taxation from oil and gas fall) by 2019 but out of this Debt to GDP ratio of 100% (2019) how much of Debt is created from domestic or external borrowings, ie Domestic to External debt ratio?? So far Govt leveraging on high domestic saving base, borrow from our pension and investment funds like EPF and SOCSO & financial sector (banks, insurance companies). Now domestic lenders/institutions can be persuaded or muscled to lend, re-finance, reschedule and they always have faith in own govt bonds, extended or substituted again and again into perpetuity. It will be argued – what’s wrong in our citizens/countrymen lending to own govt so that the government can spend it on us; or if taxes raised to pay for maturing debt comes from own citizens and the debt payment goes back to citizens – all that occurs being a change in financial obligations and maybe some redistribution of wealth ala NEP, but not necessarily a net burden on taxpayers?
#3 by Jeffrey on Wednesday, 11 January 2012 - 12:09 pm
Putrajaya will say, Look East at Japan, it has raised debt to over 200% of GDP – its debt being held by domestic institutions like postal savings banks and pension funds- and yet is barely penalised by bond investors (unlike Spain & Italy). [Conveniently, it won’t be mentioned that we’re nothing like Japan in terms of work ethos and technical skills or its level in the value added chain not to mention bogged down by debilitating implementation of NEP and leakages from endemic corruption]. Take Iceland/Argentina – they’re burdened by external debt and were bankrupted by external lenders calling default, causing its currency to collapse, cannot pay for imports. We are also not Eurozone countries where by treaties etc European Central Bank (unlike Bank Negara) cannot just print Euro and act as lender of last resort to bail out Greece Portugal Italy & Spain if threatened by external lenders with default.
#4 by bush on Wednesday, 11 January 2012 - 1:26 pm
How to grow if BN still using the NEP to loot/rob the nation coffer by using the old statement
“Kita(BN) akan mempertahankan masa depan kaum Melayu (Kaya-raya melayu only):-
Theft list :
. 1. PKFZ RM12bill
>
> 2. Submarine commission RM500mil
>
> 3. Sime Darby RM964mil
>
> 4. Paya Indah Westland RM88mil
>
> 5. Posmalaysia (transmile) RM230mil lost
>
> 6. Eurocopter deal RM1bil wasted?
>
> 7. Terengganu Stadium Collapsed RM292mil
>
> 8. MRR2 repair cost RM70mil
>
> 9. Maybank Overpaid BII RM4bil
>
> 10. Tourism -NYY kickback RM10mil
>
> 11. 3 paintings bought by MAS—————– RM 1.5M
>
> 12. Overpayment by Sport Ministry————- RM 8.4M
>
> 13. London ‘s white elephant sports complex —- RM 70M
>
> 14. MRR2 Repairs—————————— RM 70M
>
> 15. MATRADE repairs ————————– RM 120M
>
> 16. Cost of new plane used by PM————– RM 200M
>
> 17. InventQ irrecoverable debt —————- RM 228M
>
> 18. Compensation for killing crooked bridge —– RM 257M
>
> 20. Lost in selling Augusta ——————— RM 510M
>
> 21. Worth of AP given out in a year ———— RM 1.8B
>
> 22. Submarines (future Muzium Negara artifacts)- RM 4.1B
>
> 23. PSC Naval dockyard ———————— RM 6.75B
>
> 24. The Bank Bumiputra twin scandals in the early 1980s saw US$1
> billion loss (RM3.2 billion in 2008 ringgit)
>
> 25. The Maminco attempt to corner the world tin market in the 1980s
> is believed to have cost some US$500 million. (RM1.6 billion)
>
> 26. Betting in foreign exchange futures cost Bank Negara Malaysia
> RM30 billion in the 1990s.
>
> 27. Perwaja Steel resulted in losses of US$800 million (RM2.56 billion).
>
> 28. Use of RM10 billion public funds in the Valuecap Sdn. Bhd.
> operation to shore up the stock market
>
> 29. Banking scandal of RM700 million losses in Bank Islam
>
> 30. The sale of M.V. Agusta by Proton for one Euro making a loss of
> €75.99 million (RM 348 million)
> Same as No:20?
>
> 31. Wang Ehsan from oil royalty on Terengganu RM7.4 billion from 2004 – 2007
>
> 32. For the past 10 years since Philharmonic Orchestra
> was established, this orchestra has swallowed a total of RM500
> million.Hiring a kwai-lo CEO with salary of more than RM1 M per annum
> !!
>
> 33. In Advisors Fees, Mahathir was paid RM180,000, Shahrizat
> Abdul Jalil (women and social development affairs) RM404,726 and Abdul
> Hamid Othman (religious) RM549,675 per annum
>
> 34. The government has spent a total of RM3.2 billion in teaching
> Maths and Science in English over the past five years. Out of the
> amount, the government paid a whopping RM2.21 billion for the purchase
> of information and computer technology (ICT) equipments which it is
> unable to give a breakdown. Govt paid more than RM6k per notebook vs
> per market price of less than RM3k through some new consortiums that
> setup just to transact the notebook deal. There was no math & science
> content for the teachers and the notebooks are all with the teachers’
> children now.
>36. RM300 million to compensate Gerbang Perdana for the RM1.1 billion
> “Crooked Scenic Half-Bridge”
>
> 37.RM1.3 billion have been wasted building the white elephantCustoms,
> Immigration and Quarantine (CIQ) facilities on cancellation ofthe
> Malaysia-Singapore scenic bridge
>
> 38. RM 100 million on renovation of Parliament building and leaks
>
> 39. National Astronaut Programme – RM 40 million
>
> 40. National Service Training Programme – yearly an estimate of RM 500 million
>
> 41. Eye of Malaysia – RM 30 million and another RM5.7 million of free ticket
>
> 42. RM 2.4 million on indelible ink
>
> 43. Samy announced in September 2006 that the government paid
> compensation amounting to RM 38.5 billion to 20 highway companies.
> RM380 million windfalls for 9 toll concessionaires earned solely from
> the toll hike in 2008 alone.
>
> 44. RM32 million timber export kickbacks involving companies
> connected to Sarawak Chief Minister and his family.
>
> 45. Two bailouts of Malaysia Airline System RM7.9 billion. At a time
> when MAS incurring losses every year, RM1.55 million used to buy three
> paintings to decorate its chairman’s (Munir) office.
> Expanding on No:11
> 46. Putra transport system bailout which cost RM4.486 billion.
>
> 47. STAR-LRT bailout costing RM3.256 billion.
>
> 48. National Sewerage System bailout costing RM192.54 million.
>
> 49. Seremban-Port Dickson Highway bailout costing RM142 million.
>
> 50. Kuching Prison bailout costing RM135 million.
>
> 51. Kajian Makanan dan Gunaan Orang Islam bailout costing RM8.3 million.
>
> 52. Le Tour de Langkawi bailout costing RM 3.5 Million.
>
> 53. Wholesale distribution of tens of millions of shares in
> BursaMalaysia under guise of NEP to cronies, children and relatives of
> BN leaders and Ministers worth billions of ringgits.
>
> 54. Alienation of tens of thousands of hectares of
> commercial lands and forestry concessions to children and relatives
> of BN leaders and Ministers worth tens of billions of ringgits.
>
> 55. Since 1997, Petronas has handed out a staggering 30 billion
> ringgit in natural gas subsidies to IPPs who were making huge
> profits.In addition, there were much wastages and forward trading of
> Petronas oil in the 1990s based on the low price of oil then. Since
> the accounts of Petronas are for the eyes of Prime Minister only, we
> have absolutely no idea of the amount.
>
> 56. RM5700 for a car jack worth RM50
>
> 57. Government-owned vehicle consumed a tank of petrol worth RM113
> within a few minutes
>
> 58. A pole platform that cost RM990 was bought for RM30,000
>
> 59. A thumb drive that cost RM90 was bought for RM480
>
> 60. A cabinet that cost RM1,500 was bought for RM13,500
>
> 61. A flashlight that cost RM35 was bought for RM143
>
> 62. Expenses for 1 Malaysia campaign paid to APCO?
>
> 63. RM17 billion subsidy to IPP
>
> 64. USD24 million diamond ring for Ro$mah — cancellation of order
> — how much compensation???
#5 by Winston on Wednesday, 11 January 2012 - 1:41 pm
It doesn’t take a rocket scientist to know that we’re heading
towards bankruptcy!
Judging by the way the taxpayers’ money is being thrown
away?
Haven’t some senior government official predicted some time
ago that the country will be bankrupt by 2019?
So, we’ll be a developed country with an empty coffer?
So, even if the PR were to take over Putrajaya, it’ll end up with
having to pay the debts left behind by others?
So, whatever victory the PR gets it’ll only be a pyrrhic
victory?
#6 by sheriff singh on Wednesday, 11 January 2012 - 5:15 pm
Don’t worry. We have Rosmah to advise the government.
#7 by sotong on Wednesday, 11 January 2012 - 5:42 pm
BN needs another term before the major revenue, oil reserve is depleted.
Then, PR can take over to clean up the mess and introduce major reform, including reducing real national debt and cut government expenditure.
#8 by PoliticoKat on Friday, 13 January 2012 - 1:10 pm
You don’t need the debt to reach 100% GDP to spell the end. You just need the interest repayment of the debt to exceed your ability to pay it of. Once Malaysia is unable to meet the interest repayments, the nation debt will grow even if Malaysia stops borrowing money. Debt will then spiral out of control.
What we need to know is how much is the annual interest on the nations debts, how much is Malaysia paying, and how much does malaysia continue to borrow (and at what interest).