Malaysia – Forget Debt As A Percent Of GDP, It’s Really Much Worse


“When central bankers, macroeconomists, and politicians talk about the national debt, they often express it as a percent of gross domestic product (GDP) which is a measure of the total value of all goods produced in a country each year. The idea is to compare how much a country owes to how much it earns (since GDP can also be thought of as national income). The problem with this idea is that it is wrong. The government does not have access to all the national income, only the share it collects in taxes. Looked at properly, the debt problem is much worse.”Jeffrey Dorfman – Forbes

Malaysian Insider

Malaysia’s debt in safe zone, Dewan Rakyat told – Bernama

Abdul Wahid

Malaysia’s debt level is still in the safe zone with a deficit of less than 4%, the Dewan Rakyat was told. Minister in the Prime Minister’s Department, Datuk Seri Abdul Wahid Omar said Malaysia has managed to reduce the deficit from 6.9% in 2009 to 3.5% in 2014. – The Malaysian Insider pic, March 26, 2015.

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Malaysia’s debt level is still in the safe zone with a deficit of less than 4%, the Dewan Rakyat was told today.

Minister in the Prime Minister’s Department (JPM), Datuk Seri Abdul Wahid Omar said Malaysia managed to reduce the deficit from 6.9% in 2009 to 3.5% in 2014.

“This means that Malaysia has entered the safe zone. In terms of financial management, we are getting better,” he said when winding up debate (JPM) on the Yang di-Pertuan Agong’s opening address.

A country’s financial position is deemed to be in the safe zone if it has debt of 70%, including contingent liabilities and a deficit of less than 4%.

Read more – Forget Debt As A Percent Of GDP, Its Really Much Worse

On the other hand, a country’s financial position is deemed critical if it has debt of over 100% of Gross Domestic Product (GDP) and deficit of over 4%.

Replying to a question from Nga Kor Ming (DAP-Taiping), Abdul Wahid said the government would ensure the country’s debt remain below 55% of GDP.

He was confident Malaysia would achieve developed nation status with high income by 2020 despite the challenging economic conditions.

“This will be achieved via the implementation of projects and programmes under the Tenth Malaysia Plan (2011-2015) and core strategies, including ‘game changer’ under the Eleventh Malaysia Plan (2016-2020).

“Among others, the focus will be on innovation and productivity to improve competitiveness and ensure sustainable growth.”

Abdul Wahid said besides measuring the status of developed countries in terms of economic performance, human capital development will also be emphasised. – Bernama, March 26, 2015.

“Measuring the national debt as a percent of GDP may be a common international norm, but it makes little sense since not all national income is collected in taxes. Looking at debt to government tax revenue, more akin to a family’s comparison of its debt to its income, the story of our national debt becomes much scarier.”Forbes

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One thought on “Malaysia – Forget Debt As A Percent Of GDP, It’s Really Much Worse

  1. “Malaysia – Forget Debt As A Percent Of GDP, It’s Really Much Worse”

    Yes indeed.

    Just to share this…

    March 11, 2015 – Najib: Malaysia’s external debt tripled to RM740bil due to ‘new loan definitions’

    The Finance Ministry also reveal that the Government’s debt as at Dec last year stood at RM582.8bil or 54.5% of the country’s Gross Domestic Product (GDP).

    March 11, 2015 – Najib: Malaysia’s external debt tripled to RM740bil due to ‘new loan definitions’ –
    http://www.thestar.com.my/News/Nation/2015/03/11/Najib-Msian-debt-triple-definitions/

    October 27, 2013.- Sakmongkol AK47 – Improving budget management: Our obssession with the 55% debt ceiling

    Improving budget management

    “The two most important things about a budget are to reduce the deficit and cut down public sector debt. Apply some common sense- something the PM and his government has been preaching on. Spend within one’s means. When giving out BR1Ms- what was the pious message that he and his ministers gave? With this RM500, spend thee wisely. So why not as an example, the government applies this advice on themselves first- spend wisely and spend within your means.

    How does this government plan to better manage the budget? It is now aiming to reduce fiscal deficit gradually achieving a balance budget by 2020. Well, the Pakatan Budget plans to achieve a surplus budget by 2018. BN is trying to get a balanced budget by 2020.

    What is the tactic? The tactic is to ensure public sector debt does not exceed 55% of the legislated debt ceiling. It is lying to us. It has already breached this now. Official federal debt is now RM540-550 billion. If you add the deficit from GLCs which has gone beyond RM100 billion, then you end up probably with 650 billion. We can now safely assume public sector debt has reached 65% of our GDP.

    Our economy is debt driven. This government fiancés it Business Plan aka budget by taking on increasingly larger debts. Each year it tops up its spending money with borrowings. 2014, it will top up 35-40 billion to make up for the insufficient revenue.

    Imagine this. If the interest charged on public debt is 4%, on a debt of 650 billion, the government is paying RM26 billion a year servicing the debt.

    So the government manages its sources of deficit around the magical 55% legislated debt ceiling. It looks at the sources of deficits and chooses the deficit-centres which have the weakest and least retaliatory voice- expenditure on the uncoordinated rakyat. Take away subsidies from them under the grand sounding name of subsidy rationalization. Although many, the voice of the rakyat is uncoordinated and they are not capable of mounting strong focused pressures unlike big businesses such as IPP, big monopolies and centres of crony capitalism. These are untouched…

    Once we set our budget as a rule, we adhere to it.

    For 2014 for example, our GDP is 1,100 billion. Using 22% as the rule, our budget should be around RM220 billion.

    As our GDP grows, the budget grows too in line with the overall economy. Our focus isn’t about ensuring federal debt level will remain low and not exceed 55% of GDP” – sakmongkol.blogspot.com, October 27, 2013.

    http://www.themalaysianinsider.com/sideviews/article/improving-budget-management-our-obssession-with-the-55-debt-ceiling-sakmong#sthash.DLaX36Rn.dpuf

    You be the judge.

    Like

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