Debt level trajectory to remain within statutory debt limit in medium term - MOF

Therefore, the Ministry of Finance (MoF) said the current debt limit of 60 per cent of gross domestic product (GDP) would be maintained to provide fiscal space in executing the nation's development agenda, strengthening the economy and ensuring a sustainable recovery.

"Concurrently the government is also exploring the feasibility of a single debt limit as one of the fiscal rules," the ministry said in its Fiscal Outlook and Federal Government Revenue Estimates 2023 report released yesterday.

Moving forward, it said lessening the debt burden is crucial in improving government debt affordability in the long term.

"The government aims to gradually reduce the federal government's debt-to-GDP ratio to provide the country with fiscal headroom to manage potential crises in the future," it said.

It said the lowering of the debt burden could be realised through fiscal reforms accompanied by improved revenue collection post-crisis and expenditure rationalisation.

"The pace of economic momentum remains positive, which is expected to grow between 6.5 and seven per cent in 2022, which will expedite the debt level trajectory towards a downward path," it said.

It said in comparison to selected A-rated peers and regional economies, Malaysia's debt-to-GDP ratio at 63.4 per cent was ranked sixth highest in 2021 after Japan (242 per cent), Singapore (145.9 per cent), Spain (118.49 per cent) Laos (95.2 per cent) and Slovenia (74.7 per cent).

MoF said in terms of debt service charges (DSC)-to-revenue ratio, Laos recorded the highest ratio at 19.2 per cent followed by Malaysia (16.3 per cent) while other countries' ratio stood less than 10 per cent, including Japan (four per cent) and Singapore (0.1 per cent).

Nevertheless, it said Malaysia's debt level remained manageable despite a higher DSC-to-revenue ratio compared to Japan and Singapore.

"The government continues to reduce debt-related risks exposure by prioritising issuance in the sufficiently liquid domestic market, maintaining a low composition of foreign currency debt and adhering jurisdictional requirement in fulfilling the DSC obligations via revenue," it said.

It said even though several revisions have been made to the debt ceiling to provide additional fiscal space, Malaysia has resiliently endured the headwinds to steadily serve maturing debts and interest payments.

"Fiscal rules adopted globally encompass a range of budget balance obligations, expenditure limits, revenue measures as well as debt ceilings," it said.

It said adherence to the fiscal rules entailed the government's full commitment to ensure the fiscal objectives, which aim for fiscal and debt sustainability, could be achieved.

"Formalising the debt rules through legal provisions has facilitated the government in containing its debt at a manageable level, especially during crisis.

"While borrowing by the government is inevitable, it is imperative to maintain debt affordability and sustainability in ensuring the resilience of the economy in the medium- and long-term, it added.