Saturday, September 29, 2012

Budget 2013: Federal Government Debt RM502 billion

Our Federal Government debt has increased rapidly from RM242 billion in 2004 to RM363 billion in 2009 and RM456 billion in 2011.  For 2012, it is projected that our debt will hit RM502 billion. That represents a marked 107.4% increase in debt over the past 8 years.

More worryingly, the debts have increased our structural debt service commitments significantly.   The rate at which our debt servicing commitments are growing will severely constrict our future operational and development expenditure.  This together with a much slower rate of growth in government revenue as shown in the budget for 2013 will have a major impact to our economy, given its current heavy reliance on public spending and investments.

From 2003 to 2008, our debt servicing obligations increased by 21.9% from RM10.5 billion to RM12.8 billion.  However, in the next 5 years from 2008 to 2013, the annual commitment has increased by a whopping 73.4%!

The official federal government debt is also expected to increase as a proportion of our GDP from 51.8% to 53.7%, staying marginally below the 55% legal federal government debt limit.  However, even the 53.7% is an artificial figure as it fails to take into consideration the Government’s contingent liabilities and hidden debts which amounted to RM117 billion as at Dec 2011.

What is frightening is, the Government’s contingent liability is expected to increase exponentially in 2013 due to the expenditure for the RM53 billion MRT project as well as other mega-infrastructure projects.  These debt driven expenses are completely off-balance sheet or not considered part of the official Federal Government debt, despite it ultimately being Federal Government funded.

In Europe, Spain is facing major financial crisis which requires hundreds of billions of Euro bailout, has an “official” debt to GDP ratio of 68.5%.  But due to various contingent liability and bank bailouts, the “real” ratio which is significantly higher has caused a near collapse of the economy, in a crisis that is still evolving.

We must not allow ourselves to get entangled in a similar crisis.

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