Malaysia “running out of tools to tackle a financial crisis”

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Ringgit-malaysiaMalaysia does not have the option of using fiscal instruments to face any future financial crisis, mainly due to its high debt and continuous budget deficit, Dr Mohamed Ariff, expert at the International Center for Education in Islamic Finance (ICEIF), said on May 14, adding that Malaysia has “no ammunition” in the fiscal front if the country was hit by a crisis.

This is due to the continuous budget deficit for the past 17 years, which has resulted in federal debt lingering close to the self-imposed ceiling of 55 per cent.

At the end of 2014, total federal debt both domestic and offshore amounted to $163.2 billion or 54.5 per cent of gross domestic product (GDP), according to a statement by the Malaysian finance ministry in March.

It also said that Putrajaya remained committed to ensuring that the federal government debt levels did not exceed 55 per cent of GDP.

“Some will argue that if we included contingent liabilities, our debt would have passed that ceiling by now,” Ariff said.

“Malaysia was in a budget surplus position in 1997, so we were able to go for fiscal stimulation and that led to budget deficit, accumulation of government debt and so forth. When the global financial crisis happened in 2008/2009, we were still able to do something about it with fiscal stimulation, and that led to the increase in public debt. It also scaled back the old timeline for balancing the books,” he told reporters at the launch of the United Nations Economic and Social Commission for Asia and the Pacific’s economic and social survey.

The target for balancing the books, which was originally in 2005, was shifted to 2007 and subsequently “abandoned” when the 2008 crisis happened.

“Now it is pushed to sometime in 2020. The problem is that since we haven’t balanced the books and we cannot balance the books until 2020, there is very little space for more public debt. Public debt is already close to 55 per cent, in fact some people say it has exceeded 55 per cent,” Ariff said.

He added that government revenue today is “just sufficient” to meet operating expenditure, as a bloated civil service takes almost all of the revenue, leaving very little for government expenditure.

“So government expenditure is only undertaken by borrowed money. That means extra debt. And that means, should there be any crisis, you have no ammunition,” Ariff said.

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Malaysia does not have the option of using fiscal instruments to face any future financial crisis, mainly due to its high debt and continuous budget deficit, Dr Mohamed Ariff, expert at the International Center for Education in Islamic Finance (ICEIF), said on May 14, adding that Malaysia has "no ammunition" in the fiscal front if the country was hit by a crisis. This is due to the continuous budget deficit for the past 17 years, which has resulted in federal debt lingering close to the self-imposed ceiling of 55 per cent. At the end of 2014, total federal debt both...

Reading Time: 2 minutes

Ringgit-malaysiaMalaysia does not have the option of using fiscal instruments to face any future financial crisis, mainly due to its high debt and continuous budget deficit, Dr Mohamed Ariff, expert at the International Center for Education in Islamic Finance (ICEIF), said on May 14, adding that Malaysia has “no ammunition” in the fiscal front if the country was hit by a crisis.

This is due to the continuous budget deficit for the past 17 years, which has resulted in federal debt lingering close to the self-imposed ceiling of 55 per cent.

At the end of 2014, total federal debt both domestic and offshore amounted to $163.2 billion or 54.5 per cent of gross domestic product (GDP), according to a statement by the Malaysian finance ministry in March.

It also said that Putrajaya remained committed to ensuring that the federal government debt levels did not exceed 55 per cent of GDP.

“Some will argue that if we included contingent liabilities, our debt would have passed that ceiling by now,” Ariff said.

“Malaysia was in a budget surplus position in 1997, so we were able to go for fiscal stimulation and that led to budget deficit, accumulation of government debt and so forth. When the global financial crisis happened in 2008/2009, we were still able to do something about it with fiscal stimulation, and that led to the increase in public debt. It also scaled back the old timeline for balancing the books,” he told reporters at the launch of the United Nations Economic and Social Commission for Asia and the Pacific’s economic and social survey.

The target for balancing the books, which was originally in 2005, was shifted to 2007 and subsequently “abandoned” when the 2008 crisis happened.

“Now it is pushed to sometime in 2020. The problem is that since we haven’t balanced the books and we cannot balance the books until 2020, there is very little space for more public debt. Public debt is already close to 55 per cent, in fact some people say it has exceeded 55 per cent,” Ariff said.

He added that government revenue today is “just sufficient” to meet operating expenditure, as a bloated civil service takes almost all of the revenue, leaving very little for government expenditure.

“So government expenditure is only undertaken by borrowed money. That means extra debt. And that means, should there be any crisis, you have no ammunition,” Ariff said.

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