Malaysia can’t keep increasing debt level, finance minister says

Malaysia’s ability to increase its level of indebtedness is limited compared to developed nations with much lower debt service ratios, Finance Minister Tengku Zafrul Aziz said today.

He said the country’s ratio of debt service payments to revenue reached 16.3% in 2021 and, based on  Budget 2022, is expected to exceed 18%.

“This means that for every RM1 of government revenue, almost 20 sen is used for paying interest on debts, and this is apart from the ability to repay the principal amounts on loans taken by the government,” he said during the minister’s question time at the Dewan Rakyat. 

Tengku Zafrul was responding to Ahmad Maslan’s (BN-Pontian) query on whether Malaysia’s debt level was still manageable and, if there was still room to borrow, why the government did not continue doing so to assist the people. 

The finance minister said a country’s ability to increase its borrowing does not depend solely on the ratio of debt to its gross domestic product (GDP), and that the most important factors are debt capacity and debt sustainability.

He said Malaysia’s debt-to-GDP ratio was only 63% compared to developed countries like Japan and Singapore which have a ratio of 263% and 133% respectively. 

“In addition, Malaysia’s tax-to-GDP ratio is around 11%, lower than other countries such as the Philippines (18%), Thailand (17.2%) and Singapore (13.3%),” he said.

On average, Tengku Zafrul said, the ratio of tax to GDP for Organisation for Economic Cooperation and Development member countries exceeds 33%. 

“This means that even if the countries’ economy recovered in 2022, economic growth would not generate the additional revenue necessary to cover the debt increase,” he said.