Borrowing costs

Raising debt ceiling may lead to higher borrowing costs: Expert

PETALING JAYA: While it may be normal for a government to raise the debt ceiling, the danger lies in possible downgrades by international rating agencies.

Economists also say the higher ratio of debt to gross domestic product (GDP) will make economic growth more difficult and more vulnerable to economic crises.

Dr. Yeah Kim Leng, Professor of Economics at Sunway University (pictures) said the government can still increase the debt ceiling if it is about to breach the 65% limit.

He said it could be raised to 70%, but the government will have to get parliamentary approval.

“The maximum to which we can increase our debt ceiling is 80%, but we must remember that this is all a limit that we have imposed on ourselves.

“The government only recently raised the debt ceiling. To avoid a higher debt ceiling, the government must take prudent fiscal measures such as cutting wasteful spending.

“The saving grace is that it will get higher dividends from Petronas due to high oil prices due to the war in Ukraine.”

Yeah added that this does not mean that the government should spend the windfall and instead should save it for a rainy day.

He pointed out that a raising of the debt ceiling might not have an immediate impact, but that the country could face a downgrade by international rating agencies, leading to higher borrowing costs.

He warned that once the 80% of GDP threshold for borrowing is breached, it will dampen growth.

“Economic growth will be more difficult and the country will be more vulnerable to economic crises and defaults,” he said. the sun.

“Lack of fiscal responsibility will make it difficult for the government to respond to a crisis.

“The Petronas windfall should be used to replenish our fiscal reserve to protect us from crises. This will help support economic growth and fund government spending,” he said.

He added that the GDP only covers the operating expenses of the government and for the development expenses the government has to borrow.

Yeah said Malaysia needed to be careful about raising the debt ceiling to avoid getting into any kind of crisis.

The debt to GDP ratio for Thailand is 59.5%, Indonesia is 43.29%, Cambodia is 34.24%, Vietnam is 47.9%, Brunei is 2.8% and Singapore is 139.03%.

Deputy Finance Minister I Datuk Mohd Shahar Abdullah said the national debt at the end of last year had come close to the RM1 trillion mark, almost exceeding the 65% ceiling of the debt of the country’s GDP.

He said the government’s total debt at the end of December 2021 stood at RM978.8 billion (63.4% of GDP).

He added that debt ratios were still below the maximum debt-to-GDP ratio of 65%, as previously approved under the Temporary Public Finance Measures (Coronavirus Disease) Amendment Act 2021 2019).

In March last year, Finance Minister Tengku Zafrul Aziz said the national debt figure was RM820.7 billion (58% of GDP) at the end of 2020.

Professor Barjoyai Bardai, an economist at Tun Abdul Razak University, said it was normal for a country to increase its GDP ratio to meet its spending needs or deal with unexpected crises.

He said it was not worrying if the government increased its debt-to-GDP ratio.

“The majority of government borrowing comes from local institutions, which makes it sustainable. What we have to worry about are the huge foreign debts.

“If that were the case, we could face major problems with the repayment of these loans,” he said.

He added that the country cannot compare its debt to GDP ratio with other countries in the region as it is not an indication of progress.

Barjoyai said it was normal practice for governments to finance development, adding that the concern was the rising debt ratio in such a short time.

He said everyone wants the government to be careful in its spending, but the public still wants all the grants the government gives out.

“The government can reduce some of its expenses by making government agencies more sustainable. At one time, the government had to subsidize the Registrar of Companies to the tune of RM500 million, but in transforming it became self-sustaining.

“It’s time for government to turn to technology and IR4.0 to transform its services to make government agencies more sustainable,” he said.