Malaysia’s Rising Debt Servicing Costs Threaten Financial Stability
KUALA LUMPUR (Oct 13) – Malaysia’s ongoing reforms aimed at fiscal consolidation are being significantly undermined by escalating debt servicing costs. Datuk Seri Mohd Rafizi Ramli, the Member of Parliament for Pandan, has raised alarms about the nation’s “real risk” of breaching its debt ceiling, currently set at 65% of gross domestic product (GDP).
The Burden of Rising Debt Service Costs
Rafizi expressed concern that, despite the government’s claims of progress in reducing overall debt, the actual costs tied to servicing this debt are climbing steeply. Projections show debt service expenses are set to soar from RM40.5 billion in 2022 to an expected RM58.3 billion by 2026—an increase of RM17.8 billion. He emphasized that this surge effectively negates the RM18 billion saved from subsidy cuts and rationalization of social aid over the same period.
Unveiling True Debt Exposure
Furthermore, Rafizi pointed out that when considering off-balance-sheet liabilities, Malaysia’s genuine debt exposure is even more alarming. As of 2024, government guarantees for state-owned entities and public-private partnership projects total RM332.8 billion, accounting for 17.2% of GDP. Notable recipients of these guarantees include:
- DanaInfra Nasional Bhd: RM85 billion
- East Coast Rail Link (ECRL): RM50 billion
- National Higher Education Fund (PTPTN): RM41 billion
- Prasarana Malaysia Bhd: RM42 billion
When combining direct government borrowings (64.7% of GDP) with guaranteed debt (17.2%), the total debt exposure approaches a staggering 81.9% of GDP.
Debt Servicing as a “Toxic” Component
Rafizi characterized debt servicing as the most “toxic” aspect of government expenditure for the upcoming year. He highlighted that out of a RM6 billion increase in net operating expenditure, around two-thirds—approximately RM4 billion—will go directly toward covering interest on government debt. “For every RM1 increase in operating expenditure, 67 sen is allocated for debt interest payments,” he noted.
Economic Growth Under Threat
The implications of these rising costs may extend beyond simple fiscal management. Rafizi warned that Malaysia’s economic growth for 2026 could dip below the government’s conservative projection of 4%, jeopardizing fiscal revenue streams. He stated that if revenue in 2026 fails to meet expectations by over RM6 billion—a plausible scenario given a RM5.6 billion shortfall in 2025—the government’s revenue growth could continue to lag behind its increasing operating costs.
Currently, the Malaysian government anticipates economic growth between 4.0% and 4.5% for 2026.
Call for Overhauling Debt Management Practices
Given these concerning trends, Rafizi is advocating for a radical overhaul of the nation’s debt management policies. He criticized the existing approach as “business-as-usual,” which he believes is unsustainable. “We cannot continue making major reforms that affect the people’s livelihoods in the name of fiscal consolidation, while debt management remains confined within the Treasury, lacking sufficient scrutiny or parliamentary debate,” he stated.
Rafizi urged the Parliamentary Select Committee on Finance and the Economy to delve deeper into these issues to ensure significant reductions in total debt and debt service obligations.
He concluded with a warning: “It would be unfortunate if, by the end of this administration’s term, the national debt remains above 60% of GDP, perpetuating the practices of past governments that initially breached the original 55% ceiling.”
For those interested in further developments from Parliament, stay tuned for updates on fiscal policies, debt management, and economic strategies.
