Malaysia’s Debt is RM 455billion in 2011


October 8, 2o11

Malaysia’s Debt is RM 455billion in 2011, says The Treasury

Federal Government debt went up 11.9 percent to a stunning RM455.75 billion this year, pushing up estimated interest payment for 2012 up by RM1.94 billion.

According to the Economic Report 2010/2011, the bulk of the increase came from domestic debt, “mainly due to higher borrowings to meet financing requirements”.

The report notes that at that rate, Federal  Government debt stands at 53.8 percent of the GDP, up by a minor rise of 0.7 percent compared with 2011.

“Through the debt level has been trending upwards in recent years, debt servicing capacity remains affordable and within prudent limits. The government will ensure that debt service charges remain at 10.1 percent of revenue (compared 9.8 percent in 2010) will remain manageable and not impinge on productive spending programmes,” the report said.

It added that fiscal rules will be “rigorously observed” so that debt will not exceed more than 55 percent of GDP with debt servicing costs maintained below 15 percent. Leading the way in the debt load up in 2011 was the issuance of RM28.39 billion worth of new government investment issues (GII).

Also contributing to the hike in government debt are securities, up by 6.4 percent or RM16.72 billion this year. External debt make up a smaller portion of government debt, with market loans higher by around RM 745 million in 2011 compared with last year, and project loans down by 2.8 percent or RM 7.2 billion this year.

The rise in securities contributes to the largest portion of the expected rise in interest payments for 2012, which the Estimated Federal Expenditure report for 2012 estimates to be an astounding RM20.45 billion. Debt servicing of securities is up by RM1.2 billion, or 10.47 percent, to RM12.79 billion.

Securities are marketable debt instruments issued by the government to raise funds from the capital market. Issued in 1970s and 1980s to meet public sector development expenditure, the funds raised were used to sustain the budget deficit and prepayment of external loans starting the 1990s.

It was followed by interest paid to the Employees Provident Fund (EPF) at an estimated RM2.04 billion is up by 14.68 percent. Heavy on the interest bill at RM4.94 billion for government issued investment is, expected to rise by RM751.17 million compared with the figure for 2011.

Household debts high but manageable

The Economic Report 2010/2011 also noted that the total household debt this year stood at an phenomenal RM524.9 billion, leaping by 12.7 percent compared with last year. This means that debts held by households stand at a worrying 77.2 percent of GDP at the end of July 2011, although the report contends that this is “manageable”.

“The households debt level remained manageable as more than half of the debt comprised asset-backed loans for residential properties (at 45 percent) and vehicles (at 19.2 percent)”. A likely cause for concern is credit card spending which the report said “continued to expand” in 2011, with transactions rising 11.8 percent to RM50.3 billion in the first seven months of the year.

At the same time, the move to impose credit card service tax, announced in Budget 2010, resulted in a decline in credit card distribution. “(The) total credit cards in circulation has been on the decline, recording 8.3 million cards as at end-July 2011. This represented a 26% decline from the level recorded in October 2009,” it noted.

13 thoughts on “Malaysia’s Debt is RM 455billion in 2011

  1. This huge debt will be borne by living income earning Malaysians today and generations to come. Life is unfair; even before a Malaysian is born, he is already in debt. Politicians do not think of this at all when they borrow money to finance public expenditure.

  2. “According to the Economic Report 2010/2011, the bulk of the increase came from domestic debt, “mainly due to higher borrowings to meet financing requirements”.

    What the Report fails to say is the impact this would have on inflation as domestic interest rates would rise. And the higher cost of funds for local investors and the dampening effect this would have on domestic investment and consumption. Tapping into the capital markets for Euro dollars is no longer feasible commercially as Malaysia’s credit rating has declined and hence the reduced dependence on market loans.

    Making fiscal and monetary policies work together is going to be difficult and complex.

  3. According to BNM , foreign exchange reserves stood at RM400+ billion . Hopefully the amount is authentic, and that PR should it succeed in taking over Putrajaya will not find only millions in the vaults instead of the billions as stated by Najib. Can there be independent scrutiny ever ??

  4. Debt is related to “tipping point”. US debt 90% 0f GDP but still has not reached “tipping point”. But Greece debt 65% of GDP is now at the “tipping point”. So the moral of the story we must employ prudent debt management. Just like an individual when the banks thinks that you can pay your debt they will push you to take loans. But when they know that you you cannot seervice your debt they will not only take away your umbralla but also call the loans.

    PLCs in Malaysia must have a gearing ratio of less than 2. That means for every one dollar of assets you can broww two dollars. But many PLCs do not go to that limit they stop at one dollar and fifty cents. But nations cannot use this guidelines because GDP is not the sssets that we have. WE have to look at reserves and savings rate.

    Fot the man on the street this is all compleiated. But at the Putrajaya level there is no second chance if you get it wrong you will get the second or third kick from the mule.

  5. @scarlet

    “What the Report fails to say is the impact this would have on inflation as domestic interest rates would rise.”

    I don’t understand the point you’re making here?

    “And the higher cost of funds for local investors and the dampening effect this would have on domestic investment and consumption. Tapping into the capital markets for Euro dollars is no longer feasible commercially as Malaysia’s credit rating has declined and hence the reduced dependence on market loans.”

    Which way interest rates will go depends on both demand and supply, not supply alone. It also depends on which side of the yield curve you’re looking at.

    What actually happened is a little hard to describe without charts.

    “We need to see a trend analysis for the last 10 years to see where the economy is going. These figures plucked out and seen in isolation don’t tell us much.”

    Ask and you shall receive. Let me know what you want to see, and I’ll try and put together a post for you.

  6. @ken

    Actually, it’s probably sitting in some computers around the world, just like China’s USD2+ trillion. You didn’t think it was cash did you?

  7. Yeah, the national debt is virtual. Nothing to worry about in the short term. A coupla of downgrades from Merrill-Lynch et al won’t harm our outlook, just some ‘face’ and dignity. Need to be a bit more thick skinned, that’s all.

    Personal debt ain’t – try defaulting on a car/house loan, you end up with neither. Worse still if it’s an Ah Long – no mention of indignities and profanities thrown at you, besides losing kith and kin.

    So methinks the domestic debt is worrying enough. How do we become a high income nation (whatever that means), when debt keeps pulling our pants down?

  8. “How do we become a high income nation (whatever that means), when debt keeps pulling our pants down?” – CL

    Do it the Malaysian style. Construct many high rise buildings. You’ll be surprised but there are many Malaysians who gauge our development with the amount of tall buildings.

  9. A debt of 455 Billion is 455 too much, no matter if it is personal or national debt. There is no such thing as good debt. Our country has no reason to have any debt. We are blessed with abundant natural resources, relatively low population with oil and gas as sweeteners. So why should there be any debt at all? It is this that has to be addressed. And we better address it urgently while it is still manageable.

    With our resources we should be holding a 500 Billion wealth fund.

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