Malaysia’s national debt has ballooned to over RM1.5 trillion, sparking concerns from the public and politicians like Prime Minister Anwar Ibrahim. But is Malaysia’s debt truly a ticking time bomb or an overblown myth? This article analyzes the nuances behind the numbers.
Anwar Ibrahim’s Stance Against Malaysia’s Rising Debt
Prime Minister Anwar Ibrahim has positioned himself as an opponent of Malaysia’s escalating debt levels. In a recent interview, he emphasized the need to address the debt issue before it becomes unmanageable for future generations.
Anwar’s sentiments echo his long-standing views against reckless government borrowing. He has pledged not just to tackle the debt but to implement comprehensive measures to resolve it entirely.
Examining the Basis of Anwar’s Concerns
The latest figures reveal Malaysia’s total debt, including liabilities, has exceeded RM1.5 trillion (USD 360 billion). This equals nearly 80% of GDP, causing alarm.
Upon learning the national debt has surpassed RM1.5 trillion, it’s understandable that Anwar and the public are anxious. The number appears startlingly large at first glance.
Hence, Anwar’s administration is focused on debt reduction to ensure fiscal stability and prevent a financial crisis. But is national debt always detrimental?
Contrary Perspectives on National Debt
When discussing national debt, there is frequently an underlying assumption that high debt is inherently negative and must be swiftly curtailed. However, some economists, particularly proponents of Modern Monetary Theory (MMT), present an alternative viewpoint.
These MMT economists argue that for countries like Malaysia with autonomy over their own currency, national debt isn’t necessarily perilous. Such countries can continually generate more of their own money and hence face minimal insolvency or cash crunch risks.
Genuine constraints instead lie with inflation and availability of resources like labor, technology, and natural resources. But does this perspective explain Anwar Ibrahim’s fixation on Malaysia’s debt?
Why Does Anwar Remain Concerned About Malaysia’s Debt?
Despite his extensive experience as Malaysia’s Finance Minister, Anwar insists the government must concentrate on lowering its debt burden to maintain fiscal sustainability and prevent a crisis.
Does this imply Anwar has misplaced fears about Malaysia’s soaring debt, as covered in a previous article? Let’s attempt to deconstruct this by examining national debt through an MMT lens.
MMT Framework Offers New Perspective on Malaysia’s Debt
MMT has straightforward tenets. Malaysia exercises full authority over its currency, the Malaysian Ringgit. This means theoretically, it can print more money to pay its debt.
The Central Bank of Malaysia can create funds to settle domestic debt, which constitutes a sizable portion of total debt. But would unlimited money printing trigger inflation?
Possibly, if not prudently controlled. However, the objective here isn’t to promote reckless printing but to challenge the notion that national debt must always be rapidly eliminated like personal debt. In reality, its dynamics are more intricate.
Analyzing Malaysia’s Pandemic Response Through MMT Lens
Examining Malaysia’s pandemic response offers a contemporary case study of how fiscal and monetary policies are deployed during downturns.
On the monetary front, Malaysia’s central bank dramatically reduced interest rates, as did others worldwide. Fiscally, the government increased spending, launching record stimulus packages to revive the economy.
While exact money supply figures aren’t public, Malaysia’s 2022 budget of RM332.1 billion was its largest ever. An additional RM150 billion stimulus was introduced in mid-2021 during lockdowns.
But aggressive stimulus risks inflation when money supply rises without matching growth in production. In Malaysia, inflation climbed from under 2% pre-pandemic to over 4% at its peak.
To curb inflation, Malaysia’s central bank raised interest rates, increasing borrowers’ repayment burdens. Growing public sentiment also advocates higher taxes on the wealthy, although this could dampen financial motivation.
Re-evaluating Stability of Malaysia’s Debt
MMT principles seem theoretically sound. This leads us to question frequent claims by Malaysian politicians and media that curbing expenditure is critical to maintain balanced government finances.
National debt can actually enable economic stability. Government spending often undergirds public services and investments in infrastructure, education, healthcare, etc. These can stimulate growth and prosperity.
Consequently, while lowering national debt appears praiseworthy, potential trade-offs like reduced public services and investments must be weighed.
Debt Still Requires Careful Management
This isn’t to imply debt is insignificant. Managing it necessitates striking a delicate balance. Governments must oversee spending to sustain stability, control inflation, and safeguard citizen welfare.
Consideration must also be given to foreign-denominated debt, which is riskier. This refers to debt in currencies other than the nation’s own.
While much of Malaysia’s debt is domestic and in Ringgit, it does have some foreign debt. This is where complexity arises, as countries lack authority to print foreign currencies.
So if a large share of debt is foreign-denominated, default risks emerge. It’s noteworthy that a substantial portion of Malaysia’s debt is domestic, providing some insulation. But foreign debt requires vigilant monitoring.
Evaluating the Myth of Malaysia’s Debt
Given the nuances, it’s inaccurate to view high national debt as inherently detrimental, with austerity as the sole solution. This oversimplifies a complex issue.
However, responsible debt management remains crucial, especially for foreign-denominated debt with higher risks. While Malaysia’s domestic debt in Ringgit offers some buffer, foreign debt warrants careful handling.
The discourse on national debt should shift from an inherently negative perception to a more balanced understanding. The goal isn’t to eliminate but effectively manage debt to benefit the economy and citizens.
Perhaps it’s time to reassess Malaysia’s debt situation and the approach to addressing it. But what are your thoughts? Let us know in the comments!