Heavy borrowing will make Malaysia another Greece?

Since the 1998 Asian Financial Crisis, government expenditure has consistently exceeded its revenue by a considerable margin. For example, in 2011 the spending is estimated to be RM229 billion while the revenue will be only RM183 billion. So the shortfall of RM46 billion has to be met by borrowing.


That the Budget that was tabled in the Dewan Rakyat on 7 October 2011 was an election budget is very clear. There have been numerous detailed comments on the Budget by politicians and analysts (since then). In this article, we are just going to focus on one of the long term issues from the Budget. It concerns the increasing debt burden of the federal government.

How big is the government debt?

The federal government’s outstanding debt has been increasing since 1970. From the detailed data available from Bank Negara’s website, in 1991, it reached a temporary peak of RM99 billion and then decreased to RM90 billion by 1997. From then, it has been virtually doubling every five years. By the end of 2011, we can expect the figure to reach RM450 billion.

In other words, since the Asian crisis of 1998, we have been growing by borrowing heavily. In the 10 years since 1999, our debt has quadrupled. If we continue on this path, by 2020, our national debt will reach RM1.6 trillion. If our population is 40 million then, each Malaysian will have a debt burden of more than RM40,000 and this does not include our own personal borrowing. Assuming an interest rate of five per cent, paying the interest alone will cost the taxpayers RM80 billion per year!

The government has been reassuring us by saying that our debt is manageable. It argues that the debt at the end of 2012 will be only 54 per cent of our GDP, which is relatively low compared to the current crisis nations like Greece and Italy. (GDP is a measure of the total value of all the goods and services produced in a year in the country.) While it may not reach the levels of Greece by 2012, at our current rate of borrowing it won’t take long before we become another Greece. Just to put this in perspective, our giant neighbour, Indonesia has a debt of only 23 per cent of GDP! Singapore has no debts.

The federal government debt alone does not tell the full story. Many government-owned enterprises also have borrowings. If these figures are included, then the total debt would be much higher. It is difficult to get the complete data on these borrowings.


Why has the debt been growing so rapidly?

Since the 1998 Asian Financial Crisis, government expenditure has consistently exceeded its revenue by a considerable margin. For example, in 2011 the spending is estimated to be RM229 billion while the revenue will be only RM183 billion. So the shortfall of RM46 billion has to be met by borrowing.

Of course it is not expected that the government balances its books every year. Prudent economic management requires the government to balance its budget over an entire business cycle. So we can have deficits during bad years and budget surpluses during good years. Since 1998, we have had at least two business cycles; yet every year without fail we have had budget deficits!

This is evidence of fiscal irresponsibility. Here is a government which does not know the meaning of saving for a rainy day. A good example is the situation in the current year.

Actual revenue for 2011 is going to be higher than the budgeted figure by RM17.6 billion. This is mainly due to the increased income from the rise in oil prices in 2011. The federal government relies heavily on different forms of revenues (corporate tax, petroleum profit tax, royalties, Petronas dividends, etc) that originate from the production and export of oil and gas in Malaysia. The proportion can be 30-40 per cent of the total government revenue. Thus a rise in the world price of oil translates directly into higher income for the government. So essentially, we had a windfall income.

What would a prudent government do with this windfall? It would reduce the planned borrowing. But that’s not our BN government’s way of financial management. Uncannily, the increase in the actual spending is going to be the same amount of RM17.6 billion!

When asked about this at one of the post-budget forums, a Treasury official explained that it was mainly due to higher spending on salaries and increased subsidy for petrol and diesel. We can understand the increased subsidy but why the higher salary? Did we just increase the size of the bureaucracy? This is a clear case of a government that has no control on its spending.

By Subramaniam Pillay, The Malaysian Insider

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Let's pray that the country's economy recovers fast, and our Govt can repay EPF the loan it took, so that the workers' dilemma is buried forever. Go back to work dilgently and continue to contribute and save faithfully in EPF.

What worries me is that EPF has borrowed 300million British Pounds (RM 1,482m).
Why? What has happened to our money?
This lends credibility to the claim that

EPF IS IN BIG TROUBLE. 
Will you get back your EPF money?  

    One of the largest funds in the world – RM 440.52 billion
    Represents the life savings of 12 million Malaysians
    BN govt already spent 60% of the people's savings

23 June 2011, EPF said that 60% of its funds have been borrowed by the Malaysian govt.

Dec 2010, the govt still owes EPF about RM 240 billion.

This means the BN govt has already spent 60% of all your savings.

DO YOU THINK you will get your money back?

See the chart (attached).  2012 will mark the 15th year of budget deficit with no sign of financial smarts.

The Constitution of Malaysia caps govt debt at 55% of GDP.  As of 30 June 2011, govt debt stands at 53%.  When it touches 55%, the BN govt will officially be in crisis and the Constitution may need to be changed to increase borrowing and possibly require a bailout.

What happened to Greece recently? They had to write off 50% of outstanding govt loans.  Just imagine if EPF is asked to take a 50% cut of outstanding debt owed by BN.  More than half your EPF money will be lost, and you just have to accept it, after 40 years of working.

Greek Tragedy from Malaysian Travesty?