Najib is using national debt as a political tool to attack the opposition. Mahathir has a poor record of managing debt. But Najib is playing with fire.
Prime Minister Najib Razak is using the national debt as a weapon to attack his opposition. He warned the public that Pakatan Harapan’s (PH) election victory would cause debt to rocket.
PH’s manifesto includes plans to abolish road toll collection and goods and services tax. Najib warned this would increase the national debt to RM1.1 trillion (US$280 billion). He added that Malaysia’s national development would suffer from the loss of revenue.
Malaysian debt was at its highest under Mahathir
During PH candidate Mahathir Mohamad’s tenure as prime minister, national debt peaked. In his first term, Malaysia’s debt-to-service ratio increased from 12.9% to 23.9%. It reached a peak of 31.8% in 1987 before it began decreasing.
But debt has also been rising under Najib
Najib’s warnings of debt figures above the RM1 trillion mark are meaningless. His government has already taken debt close to RM1 trillion. In September 2017, federal government debt was around RM700 billion (US$181 billion). But this figure did not include government-guaranteed debt.
Najib’s government operates without transparency. This makes it difficult to calculate the real size of Malaysia’s debt. Government-guaranteed debt from the 1MDB project stands at RM200 million (US$52 million). This is just one project. Mahathir’s Beratsu party has suggested the real figure may be around RM1.26 trillion (US$330 billion). However, this seems like an ambitious estimate.
Najib wants to keep conversation on the national debt
Najib would rather talk about debt than the impact his economic policy has had on Malaysians. Real wage growth between 2014 and 2016 in urban areas was at less than 1%. Inflation is also increasing year on year. Malaysians are feeling the pinch.
Najib wants to deflect the conversation away from stagnating wages and inflation. He would rather remind the public that debt under Mahathir was astronomical. But it is little more than a diversion tactic.
Debt will increase whoever wins the election
Large-scale projects like the High-Speed Rail (HSR), the Melaka Gateway, and East Coast Rail Link (ECRL) will add to the national debt.
The ECRL will cost the Malaysian government RM55 billion (US$14.2 billion). It secured a loan from China’s Exim Bank for 85% of the amount. The loan is interest-free for seven years. However, once this grace period is over, the interest rate is 3.25%.
However, there is speculation that the railway will not generate its projected returns. This will hamper Malaysia’s ability to repay the loan.
Najib would be wise to stop throwing stones. He is sitting in a glass house. Mahathir was able to begin bringing debt down during his second term. Under Najib debt has only continued to rise.
Malaysia’s debt problem will get worse before it gets better no matter who is in government. If Najib does not want to talk about inflation or stagnating wages. He would rather make national debt a prominent election issue. However, Najib is playing with fire. The public will be unforgiving should he win, and debt continues to increase.