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What does this mean?
A family whose loved one suffers from an illness can borrow to pay medical bills, leaving finances tight for years to come.
Similarly, Malaysia will find a larger share of its budget in the coming years to repay loans, leaving less for development.
The table below shows that the proportion of annual budgets that are allocated to debt service is increasing.
One way to overcome this is to grow the economy faster or in simple terms: make more money than you spend.
But in the event of an economic crisis, high debt would leave the country with little room for maneuver, just as someone with a lot of loans will struggle if they receive a pay cut.
That is why previous governments have worked to reduce the deficit.
But efforts have been hampered by the oil crash in 2016-2017, the abolition of the goods and services tax (GST) in 2018, and now the Covid-19 pandemic in 2020-2021.
The country’s debt-to-gross domestic product (GDP) ratio has also skyrocketed twice in just over a decade, as shown in the graph below.
There is a self-imposed limit to how much the country can borrow relative to GDP, but governments have moved the target by raising the debt ceiling.
In 2009, the debt ceiling was raised from 45 percent to 55 percent to cope with the economic crisis that year.
This year, the debt ceiling was raised further to 60 percent to deal with the Covid-19 pandemic. The government is expected to reach the debt ceiling.
As seen in the graph above, once the debt ceiling is raised, governments have struggled to bring it down to previous levels.
Malaysia will eventually have to accept its debt.
