Finance Minister Tengku Zafrul Aziz today stressed that the government’s debt is still below the statutory limit, in strict accordance with the law, despite allegations that it had crossed the 60% threshold at the end of last year.
Zafrul’s recent post of an explanation clarifying queries about the national debt is seen as a response to allegations made by former prime minister Najib Razak, who said the government was not honest and accused it of manipulating the country’s fiscal data.
According to Zafrul, the national debt is still within the statutory limits allowed by law as the frequently mentioned 60% statutory limit comprises Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII), and Malaysian Islamic Treasury Bills (MITB).
Prior to Covid-19, Malaysia capped its domestic and external debts at 55% of GDP, a self-imposed limit that was overturned when Covid-19 struck, as the country needed more fiscal flexibility to save lives and livelihoods.
Acting on the needs of the government to function effectively, Parliament approved the Temporary Measures for Government Financing (Covid-19 Act) to increase the limit to 60% of GDP for MGS, MGII, and MITB.
The Covid-19 Act was passed with the support of almost all MPs, which enabled the government to disburse more direct aid to the B40 group and micro SMEs, saving jobs through wage subsidies and supporting businesses.
The higher debt ceiling also allowed the government some buffer, particularly in directing additional aid to those worst affected by the pandemic.
In further clarifying the other two debt instruments which likewise contain statutory limits, Zafrul listed the external debts or offshore borrowings, for which the External Loans Act 1963 imposes a limit of RM35 billion, which the government strictly adheres to.
These debts are meant for projects such as the Japan International Cooperation Agency or Islamic Development Bank loans and market loans such as global sukuk or samurai bonds.
The second was the treasury bill, which according to Zafrul is capped at RM10 billion.
In this regard, he said, the total government debt for these two instruments was still below the statutory limit. ⠀
“When some parties refer to the national debt reaching 62% by the end of 2020, it is actually a sum of all the above debts,” he said, adding that each component has its own debt limit and never exceeds the cap for legal debt.
Zafrul said the government’s priority now is to help the people face the challenge of Covid-19. In a normal economic situation, he said, the government would need to balance between spending for the people and the increasing national debt ratio.
However, as the country is faced with an economic crisis, he said the need for spending would be greater, causing the national debt level to increase in tandem.
“As a result, the government prioritised helping the people, including by injecting RM340 billion into the economy through a series of stimulus packages, which incidentally raised national debt, without exceeding the statutory limit.”
He said the total sum of statutory debt was RM820.7 billion or 58% of GDP as of December 2020, measuring 54% of GDP at the end of February and projected to reach 58.5% at year-end.
He added that the finance ministry would continue monitoring the country’s debt to ensure it is under control to maintain the confidence of investors as well as international agencies.
“Without their confidence, the people will be affected by various negative effects such as the lack of job creation and business opportunities,” he said.
On legacy debt, Zafrul said there is good debt and bad debt.
He said good debt is like a loan taken to cover the cost of initiatives to help the people and to save jobs such as infrastructure development, for example roads and other public facilities.
Bad debt meanwhile is debt that does not bring any economic benefit or benefit for the people, he said, adding that the government has had to manage some such debt left behind by the previous administration.
“Although this debt is not a debt created by the current government, it is still a debt that we have to manage. The effect is huge but we are trying to manage it,” he said.