Malaysiakini News

The truth of our debt may hurt, but only for a time

Rais Hussin  |  Published:  |  Modified:

COMMENT | The public debt reaching RM1.09 trillion or 80.3 percent of the GDP has raised concerns, justifiably, as to whether these borrowings will help improve the growth of the Malaysian economy, or weigh down the economy and also future generations.

Key concerns are the rising government-guaranteed loans and public-private partnerships (PPP) between lease repayments that lack transparency. The previous administration had a convenient and acrobatic way to shift the debt figures, all while holding public debt below the 55 percent level.

The fact is, had the lie continued, the high public debt would have resulted in more spending on servicing the interest for the borrowings, thus further straining the resources of the country.

This is reflected in the low ratio of operating and development expenditure to debt at 0.20x and 0.04x respectively in 2017, from a high of 0.50x and 0.14x respectively in 2008. It was the lowest reading since 1988.

Though the current scenario shows some signs of similarities to the 1998 Asian financial crisis, the debt is mostly in ringgit, insulating Malaysia from any international financial maelstrom.

Indeed, notwithstanding the high debt, it is important to take note that the salient reasons for foreign funds to flock into the emerging markets include the attractive growth rates and low inflation, as compared to the previous decade.

This macroeconomic environment in Malaysia is enough to keep the interest rates low and manageable in the mid-term.

Not cooking the books

More importantly, one should expect near-term market volatility, driven by the combination of local and global noises about the national debt of Malaysia, to calm down. And they should, as the new government is telling the truth and not cooking the books.

Thus, it deserves to be repeated here that the global equity market's withdrawals from Malaysia will peak, then return with gusto to produce a correction – once they see the importance of speaking the truth and responsible fiscal management.

With bond yields on the upside in fear of inflation, we expect the markets to correct anyway. As things stand, the domestic emerging market growth remains resilient. This is also the case with other emerging countries.

Hence, one can expect the Malaysian market to bounce back. The risk appetite of institutional investors in Malaysia will also grow with greater transparency, governance and clarity on the direction of the economy.

More importantly, with the attempt to lower the public debt by the same token debt servicing, the genuine development expenditure of the government will grow, indeed, to improve quality based growth.

Among others, the focus areas would be:

  • Improving the monitoring of the expenditure in each area of economic activity, especially at the micro level;

  • Greater transparency on government-guaranteed loans under PPPs that may not be fiscally responsible;

  • Improving and effectively managing government consumption;

  • Targeting high-impact and productive businesses to drive growth;

  • Boosting investors’ and domestic confidence by addressing leakages; and

  • Spurring the strength of an attractive ringgit to support overall business competitiveness.

The overall strategic situation is simple: if Malaysia does not want its financial position to fall into disrepair – as in Portugal, Ireland, Greece and Spain, otherwise unceremoniously known as ‘PIGS’ at the height of the 2008 global financial crisis – then what Finance Minister Lim Guan Eng has done in recent days is admirable.

He has taken the "bull by the horns", as Muhyiddin Yassin is known to have said, before he was dismissed by then prime minister Najib Abdul Razak in 2015.

Debt bomb

A national debt of RM 1.09 trillion is serious, even if 92 percent of it is denominated in local currency, thus averting a global speculative attack. Furthermore, the debt bomb is grave.

Huge debts imply the possibility of a large non-performing loans (NPLs). While NPLs are not a problem in Malaysia as yet – given that the economy is still growing at twice the rate of other developed countries, such as the 25 member states of the OECD – a huge debt takes Malaysia closer to the realm of NPLs when the population begins to age, and productivity gains cannot keep track with the growth.

Since 80 percent of Malaysians are below the age of 50, Malaysians, in general, will not face the greying process at least until 2043, at which point the number of people above the age of 60 is likely to be twice the national average.

Furthermore, while Malaysia has removed MaGIC, the digital centre of the Malaysian innovation economy, more than 85 percent of Malaysians are technologically adept, which invariably reinforces the digital backbone of the country. Thus if the market is allowed to reign – without the onerous role of the state – the magnitude of the Malaysian debt can be tempered over time.

Ireland, for example, made a strong comeback in the digital sector, even though all its property prices had collapsed in 2008-2009. Ireland is now one of the most dynamic economies in the world, and was the first to spawn a budget carrier, Ryanair.

And when the actual size of the national debt is deciphered – even if this may include household debt, which stands at 80 percent of the GDP – policymakers will be in a better position to know how the people can be helped.

Beyond keeping the interest rates on various mortgages low, or allowing people to rent and own their homes, as promised by the new government, what was originally a debt problem has now become a solution to allow various households to fulfil their dreams of owning their own homes.

When the cost of corruption is reduced...

Good governance requires facts, and the books of the Treasury Department to be shown. To the degree they become transparent, entities like international development banks are more likely to invest in Malaysia with the confidence that no numbers are being manipulated or ‘massaged’.

When the transaction cost of corruption is reduced, or neutralised through trade in ringgit-denominated exchanges, the knock-on inflationary effect would begin to slow, ultimately, come to a crawl. The cost of living would then be controlled, especially when the price of fuel is fixed.

Also, the strongest indicator of the Malaysian economy is the national currency. In the financial sector, there is a saying that money is the best coward. It seems to hide and operate in places with the least amount of risk.

Only when a government is capable of telling the truth, indeed tending to their debt obligations, will foreign direct investment makes a beeline to Malaysia in due course. Thus, Malaysia should not be afraid to tell the truth, especially on matters verging on dollars and cents.

To be sure, this is what the credit rating companies prefer too. When Malaysia owns up to the contingent and other liabilities of the previous government, it shows a process of continuity – no matter how painful. Credit rating companies that try to punish Malaysia for telling the truth would eventually have to adjust their risk analysis.

As things are, despite the toxic nature of the 1MDB bonds that have been released, its yield in the offshore market has reached 17 percent.

Institutional investors, in other words, are confident that the administration of Dr Mahathir Mohamad is capable of resolving the 1MDB issue, not through fake rationalisation, where lands and power licences are sold, but serious anti-corruption efforts that will recoup all the funds that have been frozen abroad in various jurisdictions.

Telling the truth, consequently, is not only cathartic, but compelling in every sense of the word. Without basic honesty, there will just be "statistics, statistics, and damned statistics".

With truths and facts, Malaysia can walk upright again, and not be seen as a country infested with kleptomaniacs manifesting astonishing greed of the few for the few.


RAIS HUSSIN is a supreme council member of Bersatu, and heads its policy and strategy bureau.

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

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