Many Malaysians are still struggling to earn a living.
It’s election season in Malaysia and it looks like this year’s political hot potato will be the national debt. National debt stands at 684 billion ringgit (US$174.31 billion), putting the country’s debt-to-gross domestic product ratio at 51 per cent. Most countries in the region have a ratio of around 41 per cent.
“Some have estimated, that due to the lack of transparency, the estimated government debt could already be as high as 1.26 trillion ringgit.
The opaque nature of the Malaysian state, and the growing involvement of government-linked companies that have struggled in the private sector, have complicated the crisis.
Lim Teck Ghee, the CEO of the Centre for Policy Initiatives, a Malaysian think tank, said recently that the debt could reach 1 trillion in as little as three years.
“In fact, if the debt under Barisan Nasional continues to grow at the same rate as it has during the past decade, it will reach more than 1 trillion by 2021; 2 trillion by 2028 and 3 trillion by 2032, according to reliable estimates,” he said.
The ringgit’s volatility adds to the seriousness of the impending crisis. The current exchange rate is roughly US$1 to 3.9 ringgit, a sign of strengthening from 18 months ago when the rate was US$1 to 4.8 ringgit but still far from the US$1 to 2.5 ringgit rate before the 1997 Asian financial crisis.
Despite a 5.9 per cent increase in GDP growth last year, the highest in three years, Malaysians are still struggling with incomes. Nearly all active members of the Employees Provident Fund, 96 per cent, earned less than 6,000 ringgit a month. More than half, 62 per cent, earned less than 2,000 ringgit a month, or less than US$510.
All this adds to concerns that Malaysia will be unable to repay its debt to China created by projects under the “Belt and Road Initiative”, Beijing’s plan to develop global trade. Malaysia was one of the first countries to support the initiative with major projects such as the Malaysia-China Kuantan Industrial Park in the state of Pahang; Melaka Gateway on the west coast; the East Coast Rail Link and the Xiamen University Malaysia.
The railway enjoys a zero-interest moratorium of seven years on the 55 billion ringgit loan it received to complete the project, which was dubbed a “game changer” by Najib. However, there are already doubts the single-track railway will generate the revenue that was expected because of the limited amount of cargo it can transport compared with double-track rails.
Meanwhile, the Melaka Gateway development project, which cost 43 billion ringgit, is not even halfway towards completion despite its deadline having come and gone. The project, on a sprawling 609 acres of reclaimed land, was expected to create revenue through residential complexes, ports and entertainment outlets.
Quoting federal figures: “The share of the budget to pay for debt service charges has increased from 9.1 per cent in 2009 to 13.2 per cent in 2018.”
Malaysia seriously must find a way out of this debt trap. Voters must decide who will lead them out of the crisis before it becomes crippling.