PETALING JAYA: An economist has urged Putrajaya to clarify how it calculates the country’s debt, and if necessary, look to increase the debt ceiling.
Carmelo Ferlito from the Center for Market Education voiced concern over the country’s rising debt, which is expected to hit RM975 billion in 2021.
He said it was important for the debt to be looked at in the context of lower gross domestic product (GDP) growth and the government’s increased spending to support the economy because of the movement control order (MCO).
Recently, finance minister Tengku Zafrul Aziz said Malaysia’s statutory debt is expected to hit 58.5% of GDP but would be under the 60% statutory limit.
However, former prime minister Najib Razak has disputed the figure, arguing that the 60% limit has been breached because the present administration does not include foreign, short-term, and bank borrowings in its debt calculation, unlike previous governments.
He had also called on the government to table a motion in parliament to further increase the debt limit.
Ferlito said the government should clarify the matter to avoid giving the impression that it is not going by the book.
“It is important to know the true debt situation to determine the right strategy to reduce this debt,” he told FMT. “You would not want to simply introduce taxes in the future to pay off this debt because that can be a deterrent for new investments.”
He said with the exception of replacing the sales and services tax (SST) with the more efficient goods and services tax (GST), the government should avoid introducing new taxes.
“The government should focus on a sustainable recovery strategy through measures like opening up borders, lifting restrictions and having clear guidelines for businesses,” he said.
This will ultimately improve government revenues rather than “patching holes” through fiscal injections.
Another economist, Juita Mohamad of think tank Institute of Strategic and International Studies (Isis), said higher debt was unavoidable though the government’s plan to offer dollar-denominated sukuk bonds to finance spending could open the country up to risks posed by the currency’s volatility.
“Learning from past mistakes, we know that dependence on foreign currency borrowing contributes to currency mismatches and can make countries like ours more vulnerable to crises in the event of adverse external shocks,” she said.
“So the sukuk bonds should be dominated in ringgit so that changes in the value of the US dollar will not affect the repayment value and schedule in the medium and long term.”
She said the government can focus on lowering the country’s debt-to-GDP ratio once the country starts to record positive economic growth.