Budget deficit of RM99.48b cannot be allowed to grow: Economists

PETALING JAYA: As the world enters a recession, Malaysia must be cautious about its debt and spending as the country is almost reaching its debt threshold, which is 65% of gross domestic product (GDP).

Universiti Tun Abdul Razak economist Dr Barjoyai Bardai said the country’s economy is very dynamic, and has been moving forward rapidly, with the GDP growing since 2019.

He said last year, the nation’s GDP growth was 8.6% but this year, it is expected to be around 4.5% due to the global recession. However, this will not have a major impact on the country, and Malaysia is expected to reach its economic peak in 2026, he added.

“Although Malaysia’s debt stands at RM1.5 trillion – RM1.2 trillion being national debt and the rest liabilities – the country’s revenue collection stands at RM270 billion while debt servicing is at RM45 billion annually, which is manageable for now.

“The national budget deficit, which stood at RM99.48 billion last year, the highest since 1998, cannot be allowed to grow. The previous government had proposed a deficit budget of RM322 billion.

“Prime Minister Datuk Seri Anwar Ibrahim will be careful with the (2023) budget he intends to propose, but it has to take into account the coming recession, which means the lower-income groups will need help.”

He said the country is facing a critical year as the government cannot hope to save a lot of money, and needs to ensure its debt does not exceed the threshold level (65% of GDP).

Barjoyai added that the following year’s budget would be more stable, and Anwar should be able to cut the deficit within the next five years to bring down the national debt.

He also said Anwar has always been prudent when it comes to handling the nation’s finances and budget deficits.

The prime minister said on Tuesday that the national debt, including liabilities, has hit RM1.5 trillion and the debt-servicing charges for this year amounted to RM45 billion, representing 15% of national revenue.

He said this is also the maximum amount the country can handle.

Sunway University economics professor Dr Yeah Kim Leng said the country’s current debt level is of concern, but it is not yet alarming, adding that the government needs to be fiscally prudent in managing the national debt.

He said Malaysia’s rating by two of three international agencies remains at “A minus”, which is good.

“The nation’s fiscal position remains at a stable level but the government needs to work on reducing the vulnerabilities the country faces.

“For emerging economies, a comfortable debt-to-GDP ratio should be in the 60% to 80% level before it starts hurting national development.

“At present, Malaysia’s direct debt level is close to 65% of its GDP. But if government liabilities are taken into account, it is already above 70%.

“A prudent approach is needed and the new government needs to focus on reducing the nation’s fiscal vulnerabilities. It is important to lower the budget deficit and debt level to a more manageable one.”

Yeah said one way to achieve this is to cut down government wastage and leakage, as this would build investor confidence, adding that it is timely now for the new government to work on creative ways and conditions to reduce debt.

While acknowledging the world is entering into recession and that the lower-income group will need help, he said the government’s budget deficit does not need to increase, as by cutting wastage and leakage, the savings can be channelled to help the B40 segment of society.

Yeah said if the government can improve fiscal debt servicing and the debt level, then the debt servicing burden can be reduced.

Yeah said Malaysia’s direct debt level is close to 65% of its GDP, but if government liabilities are taken into account, it is already above 70%. – Bernamapic

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