LETTER | Does higher national debt bode ill for the economy?

LETTER | Malaysia's national debt as a percentage of its gross domestic product (GDP) is projected to rise steadily from 2023 to 2028 by three percentage points, reaching 69.97 percent in 2028.

This is a concerning trend, especially considering that in 2020, the country's debt had already increased from 67.72 percent to 69.31 percent of GDP.

The mounting national debt has raised questions about its repercussions for the economy.

When comparing Malaysia to other Asean countries, Singapore, a developed nation, recorded the highest government debt-to-GDP ratio.

As of the 4th quarter of 2022, the country's ratio reached a staggering 167.80 percent and remained relatively unchanged at 167.70 percent in the 1st quarter of 2023.

Nevertheless, Malaysia's debt-to-GDP ratio is more moderate than Singapore's, but it is still a cause for concern. It stood at 60.30 percent in the 4th quarter of 2022, slightly increasing to 61.80 percent in the 1st quarter of 2023.

The impact of higher public debt on the economy depends on how the borrowed funds are utilised.

If the debt is channelled into productive investments, it can yield significant benefits for the country.

For example, funding infrastructure projects such as roads, schools and hospitals can stimulate economic activity, create job opportunities and attract further investments.

These productive investments lead to increased tax revenues and enhanced economic productivity, which, in turn, help reduce the burden of the government's debt.

Conversely, if the debt is used for unproductive investments, it can be detrimental to the debt level and overall economic health.

Allocating resources to non-essential projects that do not contribute to economic growth or revenue generation can strain the country's finances without producing tangible benefits.

The government should prioritise productive investments to ensure sustainable fiscal management and reduce public debt while carefully avoiding wasteful spending.

Therefore, Malaysia should spend its debt wisely to avoid placing a financial strain on the country. We should carefully weigh the benefits and costs of spending on projects.

If the projects yield net benefits, we may consider investing in them. However, we should avoid allocating government funds if the projects do not provide tangible benefits.

Authors are lecturers at Polytechnic Seberang Perai and Universiti Malaysia Perlis, respectively.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.