There is also a need to disclose all debts, including government contingency liabilities, says the economist
KUALA LUMPUR: The government needs to ensure that the nation’s borrowings are utilised productively and efficiently, said a leading economist.
Speaking to Berita Daily, Ramon Navaratnam said this was necessary to ensure that the economy would be able to sustain the country’s debts and repay the rising loans and interests.
“If the economy is more productive and more efficient and better managed, the chances that the debts will be well settled, is possible.
“But if we continue to borrow and with various corruptions, inefficiencies and low productivity then, Malaysia will be in trouble,” he said.
During the Budget 2018 speech, Prime Minister Najib Razak revealed that the federal government debts stood at RM685.06 billion as at end-June 2017.
This translates the debts to 50.9% of the country’s gross domestic product (GDP).
By international standards according to the United Nations 2017 data, Malaysia accounts for 0.3% of the world’s total hefty government debts of US$63 trillion.
“It is still at around 54%, which is not alarming in itself. Especially when you compare it to some more developed countries,” said Ramon.
Malaysian Rating Corporation Bhd in its recent research report had described the government’s efforts in bringing down the budget deficit while expressing determination to keep public debt to a self-imposed statutory debt limit of 55% of GDP.
“So the question is, how good will Malaysians and the leadership be in monitoring the debt to ensure that the country will not over-borrow too soon too fast?” said Ramon.
Bailing out GLCs increases debts
Though the government’s debts are still within limits, they are not inclusive of the government-guaranteed debts of RM226.88 billion (16.9% of GDP) as reported by The Edge Malaysia.
Ramon, who is Asian Strategy and Leadership Institute (Asli) chairman, said that the government must be prudent and monitor closely all government linked companies to ensure no wastage happens.
“That’s why I said, if the debt is raised to increase infrastructure that is productive and profit-making then, Malaysia is all right. But if it is used for questionable purposes then, Malaysia will be in trouble.
“So the real issue is to watch the situation carefully, monitor it closely and be faster to adjust to and faster to react to growing wastage through corruption, inefficiency and even cronyism,” he said.
Meanwhile, Serdang MP Ong Kian Ming claimed that Malaysia’s service charges for debts have increased from RM14.2 billion in 2009 to RM30.8 billion in 2018.
The federal debt grew by 89.7% or an annual growth rate of 11.2% from 2009 to 2017.
Be transparent with the debts
In early 2016, the government had set up a technical committee to evaluate the government’s fiscal risks and contingent liabilities as well as to come up with appropriate measures.
It was a pre-emptive measure in response to the significant decline in government revenue following the drop in oil prices then.
However Ramon said, the committee must be transparent and it must inform the public its findings.
“And another issue is, let’s expose the full debt, including government contingency liabilities. That means including all government guarantees for our debts.
“Because if loans taken out are guaranteed and they don’t bring about profitability and productivity then, the loans would collapse and government debt will increase,” he said.
Ramon said, the concept of including contingency liabilities is important as it provided guarantees.
“If the government can provide a guarantee then, people won’t mind lending….It is not transparent enough,” added Ramon.