What’s the current situation?
For your information, the economic stimulus (PENJANA) that our Prime Minister announced in early June 2020 will make our deficit double as it could go up to 5.8% to 6%. Basically, a deficit will occur when the country spends more than what they have receives. In short, when our deficit increases, our national debt is likely to follow as well. Luckily, the Finance Minister assures that the country didn’t resort to external debts to finance both the economic stimulus (PRIHATIN & PENJANA).
But when we think about it, what else can the government do, especially in the current circumstances, other than rolling out economic stimulus? Especially as we are in a combo of the global pandemic, unstable economy, some companies went bankrupt, and many have also lost their jobs. Unprecedented times will need an unprecedented measure, yall agree tak?
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Can our government repay its debts?
To repay its debts, the government has 2 types of payments, which are the interest and principal fees. To make it simple, the government needs to pay the interest fees within the period of time set, and when it ends, they’ll need to pay the principal fees.
For example, let’s just say that the government has a 15-year contract to repay the debts. Within the 15 years, the country will pay the interest fees, which are usually 15% of the total country’s expenses. The government will only need to pay the principal fee once the 15 years end. Therefore brings the question, can the government pay in full the principal fee?
Turns out, all of these times, whenever the government needs to pay the principal fee, they will just make a new debt to pay the old one. This ‘rollover’ process is a never-ending cycle of national debts...
In the meantime kan, the government kena pastikan yang the country’s economy continues growing and progressing. This is obvi the only way the government can control the national debt.
Just imagine if the country’s national debt increases, but our economy continues to slow down. There must be something wrong somewhere in the way our country handles its finances.
One more thing, just because our national debt increases, it doesn’t necessarily mean that it’s bad. This is because we also look at it according to the gross domestic product (GDP) ratio. Here, let me break it down for you.
If you guys study closely at the table below, you can see that our national debt for the last 4 years is still considered controllable. Why controllable, you ask?
Just take a peep at the ‘National Debt (%) to GDP’ column, our national debt is only a teenie little bit over 50%. This does show that our country’s economy and profit continue to grow time by time despite the increasing national debt. Simply put, we can still control and pay the national debt.
| Year | Total National Debt (RM) | National Debt (%) to GDP |
|---|---|---|
| 2022 | RM1.080 trillion | 60.3 |
| 2023 | RM1.173 trillion | 64.3 |
| 2024 | RM1.25 trillion | 64.6 |
| 2025 | RM1.3 trillion | 65 |
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Worries not. The national debt has its benefits...You may not be aware, but our country can only borrow with the aim of developing the nation. It could be for building hospitals, schools, and roads. So, if the money is handled well, we (the people) will reap the end benefits and therefore will improve our quality of life. And that is a good thing!
Besides that, the national debt will also influence the country’s monetary policy. As the government is going to work out plans to pay the national debt, they have to continuously strengthen the country’s monetary policy (annual budget). By doing that, the government will ensure the national debt remains under control. Like, how can we control it if the policy is not strong?
Also indirectly, as the economy progresses, the government will also work extra hard to attract more foreign direct investors to buy government bonds or make a foreign direct investment (FDI). So, when a new foreign investor invests, it’s highly likely that they have faith in our country’s potential and capabilities.
What can you do to contribute?
In a nutshell, there is no doubt that the country’s national debt will also increase this year, especially with everything that has been going on. The unstable economy and the list goes on and on…
As citizens, we can only hope that the government can control the national debt well. There’s not exactly much that we can do except to continue supporting the country in these circumstances. How, you ask?
*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.
