Malaysia’s sizable national debt does not pose a threat to the country’s long-term prosperity, thanks to its strong economic fundamentals and prudent fiscal management, according to economists.

Dr. Goh Lim Thye, senior lecturer at Universiti Malaya’s Faculty of Business and Economics, said the national debt — recorded at RM1.22 trillion or 63% of GDP as of April 2024 — needs careful oversight but does not inherently pose a risk.

“In assessing debt sustainability, the focus isn’t on the absolute size of debt, but rather on the country’s ability to service it without hampering economic growth or triggering instability,” Goh told FMT.

He noted that Malaysia maintains a diversified economy, solid fiscal capacity, and consistent access to both local and global capital markets. Moreover, international confidence in the country’s financial stability remains high.

“All three major credit rating agencies — S&P, Moody’s, and Fitch — reaffirmed Malaysia’s investment-grade ratings in 2024,” said Goh, who also serves as deputy dean of development at the faculty.

“These affirmations reflect investor confidence that Malaysia is managing its fiscal position responsibly and advancing key reforms.”

IMF Endorses Reform Measures
Malaysia’s reform efforts have also received praise from the International Monetary Fund (IMF), which welcomed the government’s fiscal consolidation agenda and the enactment of the Public Finance and Fiscal Responsibility Act (FRA) in its March report.

The IMF noted that current policies are aimed at rebuilding fiscal buffers, supporting economic growth, and enhancing social protection, while maintaining macroeconomic and financial stability.

The FRA, passed in 2023, is seen as a cornerstone for improving fiscal governance and long-term sustainability.

The IMF also highlighted that Malaysia’s economic conditions provide a strategic opportunity to advance structural reforms. Under the Madani Economy framework, the government has laid out policy objectives focused on income growth, digitalisation, climate change mitigation, and good governance.

Reforms Strengthening Fiscal Outlook
MIDF Amanah Investment Bank’s head of research, Imran Yusof, echoed the positive sentiment, stating that the government’s fiscal and structural reforms are creating a stronger foundation to manage debt effectively.

“We believe the government is moving in the right direction — aiming for higher surpluses and reduced deficits,” he said.

The unity government’s consolidation measures are already showing results. The fiscal deficit narrowed from 5% of GDP in 2023 to 4.1% in 2024, outperforming its 4.3% target. The 2025 deficit is projected to decline further to 3.8%.

Malaysia has also reduced new borrowings — RM75 billion in 2024, down from RM93 billion in 2023 and RM100 billion in 2022.

Imran said the focus should be on the debt-to-GDP ratio rather than the total debt amount. Since the deficit stems primarily from development spending, which is considered long-term investment, it can be justified if GDP continues to grow.

“As long as Malaysia maintains a balanced operating budget and nominal GDP keeps rising, the national debt remains manageable,” he said.

A Legacy of Crisis and Mismanagement
Goh emphasised that the current debt level is largely inherited and not a result of the current administration’s policies.

“The elevated debt stems from legacy issues and extraordinary crisis-related spending,” he explained, pointing to massive outlays during the Covid-19 pandemic and the long shadow of the 1MDB scandal.

Between 2020 and 2022, the Perikatan Nasional-led government rolled out over RM530 billion in stimulus measures, including over RM100 billion in direct fiscal injections. While these moves helped preserve jobs and prevent economic collapse, they significantly increased public debt.

The 1MDB scandal also saddled the government with long-term obligations and dented investor trust, said Goh.

“While some of these liabilities have been addressed, the broader fiscal impact and opportunity costs remain,” he said. “The challenge now is to rebuild resilience — and encouragingly, the government appears to be taking solid steps in that direction.”

Source: FMT

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Interested in having your press releases, exclusive interviews, or branded content articles on Malaysiakini? For more information, contact [email protected] or [email protected]