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The National Debt Of Malaysia
Malaysia’s national debt is the sum of all money owed by the central government of Malaysia through the issue of debt instruments. Obligations that are not represented by bonds or bills, such as pension obligations are not included in the national debt figure, and neither are the debts accumulated by the states of Malaysia.
The table below explains what is included in the national debt figure and what isn’t:
|Malaysian Government Obligation||Government Department||Included in National Debt?|
|Government-issued bonds||Ministry of Finance||Yes|
|Short-term debt instruments||Ministry of Finance||Yes|
|State government debt||None||No|
|Civil Service pension obligations||All||No|
|National pension obligations||Employees Provident Fund||No|
|National bank guarantee scheme||Ministry of Finance||No|
|Accounts Payable (unpaid bills)||All||No|
The compulsory national pension scheme of Malaysia is called the Employees Provident Fund. This is managed by the Ministry of Finance, but for accounting purposes, it is is regarded as an independent entity and its assets and liabilities are not included on the nation’s balance sheet.
Government guarantees to private companies have become a major political issue in Malaysia during 2018. These were not counted as part of the national debt, but are becoming an issue because of default on the guaranteed loans that will pass the repayment obligation to the government.
Who manages Malaysia’s national debt?
The central bank of the country, Bank Negara Malaysia, states that the government, the central bank itself, and other agencies of public service have the right to raise debt through issuing bonds and notes. All of the debt raised by the government is the responsibility of the Treasury department of the Ministry of Finance. This debt is undoubtedly part of the national debt.
The central bank is responsible for the country’s money supply and so it would only usually raise debt in order to support the currency on the exchange markets. This debt does not count as part of the national debt.
The debt raised by government agencies is usually made in the form of Public Private Partnerships or leasing agreements. This debt is controversial and is subject to a raging debate within the media in the country.
What is the government’s credit limit?
The central government of Malaysia has a debt limit imposed on it by a parliamentary law. This limit is expressed as a percentage of GDP. The level of the limit is at 55% of GDP. There are two problems with this limit. The first is that it was created by the government itself. So, it is self-imposed. A political party can only form a government in Malaysia if it has a majority in parliament, and so that limit could easily be adjust or abolished at will.
A second problem with the debt limit is that it is framed in terms of “public debt.” Governments can argue that the debt of the central government is the same as the national debt and public debt and so, in that case, the national government is allowed to go all of the way up to that 55% limit. Others claim that “public debt” should include all debt owed by the public sector, including the state governments and any public-sector government agencies.
Government debt controversy
A new government, formed in 2018 took its predecessor to task over debt management. The country’s official national debt was then at 50.8% of GDP, and so comfortably below the debt limit. However, taking into account all other debt obligations, the new government declared that the public debt could be anything up to 80.3% of GDP.
This is a good example of why those interested in the national debt figures should examine the accounts of the government that they are investigating. There are a lot of gray areas when compiling national debt figures and not every country plays by the same rules.
In the interests of full disclosure, the new government of Prime Minister Mahathir Mohamad explained that there were two “off budget” debt categories in the national account that, although not previously recognized as part of the national debt were obligations and should be accounted for in the central government’s budget.
The central bank of Malaysia still records the national debt figure as being that core 50.8% figure. However, the national government declared that debts guaranteed by the previous government should be included and so the national debt figure is actually 65.4%.
Despite publicizing the lease and public-private partnership agreements as obligations on the government’s account, the Prime Minister hasn’t taken the step of declaring those obligations to be part of the national debt. Those agreements represent a figure that is equal to 14.9% of GDP.
What is Malaysia’s correct debt to GDP figure?
- According to the central bank of Malaysia, the country’s national debt to GDP ratio is 50.8%. According to the national government, that ratio is 65.4%.
- The country’s media and some politicians and economists prefer the figure of 80.3%.
- The credit ratings agency, Moody’s is sticking with the 50.8% figure, which is good news for the country and it keeps them their star rating.
- The CIA World Factbook states a debt to GDP ratio of 54.2% for Malaysia.
- The IMF uses a debt to GDP ratio of 53.6% for Malaysia
- The World Bank only has dat up to the end of 2016 and puts Malaysia’s national debt at 52.16% of GDP
So, the question of how much Malaysia’s national debt is relies on who you ask and how up to date their figures are.
Who buys Malaysian government debt?
The Malaysian government only allows registered principal dealers to buy primary issues of government bonds direct from the Treasury. However, these dealers act as market makers and either resell those bonds onto the secondary market or organize buyers for their tranche before they bid for it. According to the Bank Negara Malaysia, the major buyers of Malaysian government bonds in order of activity are:
- The Employees Provident Fund (EPF)
- Pension funds
- Unit trusts
- Insurance companies
- Asset management companies
- Discount houses
- Commercial banks
Domestic institutions hold 96.7% of government debt, which is the equivalent of 49.2% of GDP. Overseas traders hold 3.3% of Malaysia’s national debt, which is 1.7% of GDP.
What facts should you know about Malaysia's national debt?
- You could wrap $1 bills around the Earth 725 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 20,335 km, or 12,636 miles high.
- That's equivalent to 0.05 trips to the Moon.