UPDATED 4:47pm | While the Pakatan Harapan-led federal government is trying to reduce its national debts and liabilities, the Employees Provident Fund (EPF) head of economic and capital markets department Nurhisham Hussein said the national debt should be maintained at its current level.

He argued the government only needs to keep the debt level stable at its current level of RM686.8 billion (or RM1.09 trillion with other liabilities) in order to pare down the debt-to-GDP ratio and keep the national debt sustainable.

“Even if you have a deficit of three percent per year, the economy is growing at seven to eight percent. That means the level of income is growing faster than the level of debt. It is sustainable, as long as you continue to do that, the figure will just come down.

“It is not that big. It is not rocket science. It is just plain arithmetic.

“The thing is, successful debt restructuring has never been about repaying the debt. Never. It’s always been about growth or inflation,” he told reporters today at the sidelines of the launch of the World Bank’s June 2018 edition of its Malaysia Economic Monitor.

The World Bank report maintained its previous forecast that Malaysia’s GDP will grow by 5.4 percent this year while the Harapan-led government had previously pledged to maintain the previous administration’s 2.8 percent target for its budget deficit.

He was asked to elaborate on his statement during the panel discussion where he had told the audience he had been lobbying the government to issue debt notes.

This would allow the country to maintain its economic growth without handicapping the rest of the economy, he said.

“If you try to reduce the debt, how are you going to do that? Either you increase taxes, or you reduce the amount you’re spending.

“That puts pressure on the private sector, that puts pressure on households, so they have to increase their debt levels.

“But they can’t. So, what you get is slower growth. When you have slower growth, even if you reduce debt, the (debt ratio) doesn’t fall. So, the historical examples all point to keeping growth at all costs.

“The debt level will take care of itself,” he said.

He added that the finance sector also needs government debt notes, which are seen as a safe long-term investment and are used by banks, insurance companies, and pension funds, including the EPF, to manage their long-term liabilities.

“You have to have assets to match that (liability), so we need long-term debt papers in the market for that. The Retirement Fund Incorporated (KWAP) is managing pension liabilities for the government. They need 30-year papers, or even better, 50-year papers.

“EPF also needs long-term papers: 20 years or 30 years, because we are also managing pension liabilities.

“The country is also ageing, and as the population ages there will be a higher demand for these types of savings. We need more debt papers in the market,” he said.

Meanwhile, the World Bank report maintained its previous forecast that Malaysia’s GDP will grow by 5.4 percent this year while the Pakatan Harapan-led government had previously pledged to maintain the previous administration’s 2.8 percent target for its budget deficit.

The report also noted that the government’s debt-to-GDP ratio had been falling over the years to 50.8 percent of GDP as of the end of last year.

However, the amount of debt guaranteed by the government had increased from 15.2 percent of GDP in 2016 to 17.6 percent in 2017 due to loan guarantees meant to support government-linked companies implementing large-scale infrastructure project.

“The federal government also has additional long-term fiscal commitments arising from a range of public-private partnership (PPP) arrangements totalling 14.9 percent of GDP,” the report said.

Previously, Finance Minister Lim Guan Eng had said that the official government debt is RM686.8 billion (50.8 percent of GDP), but the government is also servicing loans that it had guaranteed but could not be repaid by various entities. Those amount to another RM199.1 billion.

Lease payments such as rental, maintenance, and other charges for PPP projects add yet another RM201.4 billion (14.9 percent of GDP) to the government’s total debt and liabilities, the minister said.

Meanwhile, when asked if the current debt level is sustainable, World Bank Malaysia lead economist Richard Record said there is little risk to Malaysia’s public debt.

He said 97.7 percent of the public debt is denominated in ringgit, so there is limited risk from foreign exchange.

At the same time, most of Malaysia’s debt is medium-term with nearly 70 percent of it having a maturity period of over three years. Hence, there is little risk involved when the debt rolls over.

“The important thing is transparency, vigilance, and careful and prudent management,” he said.

Earlier today during the panel discussion, he said Malaysia’s public and private sector debts are high compared to other countries at similar levels of development.

This requires careful monitoring and management, he said, and transparency is part of that.