Why Malaysia's debt isn't the problem but misunderstanding it is

New Straits Times

5 days ago

IN Kuala Lumpur, a quiet yet consequential shift is taking place in how Malaysia talks about its national debt.
After years of loud warnings and political alarmism - much of it framed in simplistic terms about trillions of ringgit and looming bankruptcy - the government is beginning to reframe the conversation. And it's about time.
Recently, Prime Minister Anwar Ibrahim made headlines by pointing out that Malaysia's new annual borrowings are actually on a declining path: RM100 billion in 2022, RM90 billion in 2023, RM85 billion in 2024 and a projected RM80 billion in 2025.
To some, this might sound like spin. After all, total debt is still rising. But that misses the point. What the Prime Minister is signaling, without perhaps saying it directly—is that fiscal management is not about avoiding debt; it's about managing it smartly over time, especially in a country that has neither a retirement age, nor an expiry date.
Too often, government debt is misunderstood through the lens of personal finance.
The average Malaysian is familiar with home loans, car loans, and credit card debt, and when they hear that national debt has crossed RM1.25 trillion, the instinct is to panic.
But a country isn't a household. It doesn't die. It doesn't retire. In fact, if managed well, a nation grows more productive and wealthier over time.
That's why all modern economies carry debt - not as a sign of recklessness, but as a tool for strategic investment and long-term growth.
What's dangerous isn't the size of Malaysia's debt in ringgit - it's how that number is politicised, decontextualised and misread.
Remember the political storm a few years ago when critics claimed the country was heading toward bankruptcy at RM686 billion? That narrative has not stood the test of time because it was never grounded in fiscal reality to begin with.
What matters more than any absolute number is Malaysia's deb-tto-GDP ratio, a metric that captures not just what is owed, but how well the country can pay it back.
The post-pandemic fiscal landscape makes this all the more urgent. Like every nation, Malaysia took on extraordinary debt during the Covid-19 crisis to keep the economy alive and people afloat.
Between 2009 and 2019, new borrowings averaged RM44 billion a year. By 2022, that number surged to RM100 billion.
The government did what it had to do. Now, as the storm clouds begin to lift, the real work begins, not to slash debt overnight which would stall the recovery but to steer it gradually toward sustainability.
This is where the Prime Minister's signal matters. Reducing new borrowings year by year is a prudent strategy, not a gimmick.
It's like shifting down gears on a winding mountain road - slow, steady, and controlled.
But even smart strategies need clear goals. That's why some economists are calling on Putrajaya to go one step further: announce a formal debt-to-GDP target and a timeline to get there.
Better yet, pass the long-awaited Fiscal Responsibility Act to anchor future decisions in law, not just politics.
According to Tan Sri Professor Noor Azlan Ghazali, who heads the Malaysian Inclusive Development and Advancement Institute (Minda-UKM), if Malaysia can maintain annual GDP growth of 5.0 per cent while reducing new borrowings by five per cent each year, projections show its debt-to-GDP ratio could fall to 54.6 per cent by 2038.
That's a number the rating agencies and foreign investors would take seriously.
It also gives Malaysians something to hold their leaders accountable to. After all, without targets, fiscal policy becomes just another "maybe."
Noor Azlan explains that there's a broader truth hiding in plain sight here: zero debt is not the goal. In fact, for a developing country trying to climb the technological and green energy ladders, zero debt is a trap.
The real question is not whether Malaysia should borrow, but what it borrows for, how it pays it back, and whether it's building a future or just patching holes.
What's needed now is a new kind of fiscal literacy, one that treats national debt less like a household budget and more like what it truly is: an economic steering wheel.
That means recognising that even cough syrup, if taken all at once, can be toxic. Taken properly, in measured doses and with the right guidance, it heals.
So here's the challenge: Can Malaysia manage its debt like a doctor would prescribe medicine carefully, deliberately and with an eye on the long-term prognosis? If it does, it just might turn today's fiscal anxiety into tomorrow's competitive edge.
*The writer is an economist, adjunct lecturer at Universiti Teknologi Petronas, international relations analyst and senior consultant with Global Asia Consulting. The views expressed here are his own.