Debt expansion rate declines as borrowing decreases

[MALAYSIA] The Malaysian government's debt expansion rate is showing signs of improvement as government borrowing decreases. This marks a shift towards fiscal stability and a reduction in reliance on debt financing. According to Finance Minister Datuk Seri Anwar Ibrahim, the debt expansion rate is expected to fall to 6% in 2025, down from 6.4% in 2024. This is in line with the government’s commitment to maintain the debt-to-GDP ratio below 60%, a target set to ensure long-term economic stability.

Government's Fiscal Management Strategy

In a recent statement, Anwar explained that the reduced borrowing is part of a broader fiscal consolidation effort aimed at controlling Malaysia's public finances. "The debt growth rate for 2025 is projected to further reduce to around 6%, reflecting a commitment to maintaining the debt-to-GDP ratio below 60%," he said. This represents a noticeable improvement from the 10.2% growth rate in 2022 and 8.6% in 2023.

The decrease in government borrowing is a significant milestone, especially when considering the high level of borrowing required in previous years to cover fiscal deficits and development projects. For 2024, Malaysia’s total government debt reached RM1.247 trillion, a decrease in the borrowing requirement from RM226.6 billion in 2023 to RM198 billion in 2024. This reduction is part of the government's ongoing efforts to reduce its fiscal deficit, which stood at 4.1% of GDP in 2024, down from 5% in 2023 and 5.5% in 2022.

Strategic Approach to Reducing Borrowing

The reduction in the borrowing requirement is supported by a range of strategic measures aimed at enhancing the country's fiscal health. Among these is a comprehensive plan for fiscal consolidation, which includes improving tax revenue. "In 2025, we are expanding the scope of sales and service taxes and implementing e-invoicing in phases to boost revenue," Anwar stated. The government’s initiative to introduce e-invoicing is expected to enhance tax collection and minimize leakages, improving transparency in public finance.

Another key measure to optimize public expenditure is the rationalization of subsidies. Starting in mid-2025, the government will expand its targeted subsidy efforts, including those for RON95 fuel. This strategy aims to curb wasteful spending while ensuring that vulnerable groups remain protected. In addition, a special committee has been established to review statutory bodies and improve the efficiency of government spending.

Commitment to Development Expenditure

Despite efforts to reduce borrowing, the Malaysian government remains committed to investing in high-impact development projects. "Government borrowings are needed to finance development expenditure on high-impact projects. Our aim is to ensure that development expenditure remains no less than 3% of GDP," said Anwar. This investment is crucial for long-term economic growth and will continue to focus on areas that have a significant impact on national development.

The government's fiscal discipline appears to be having a positive effect, with a downward trend in both the debt expansion rate and the fiscal deficit. The focus on revenue generation, expenditure optimization, and the rationalization of subsidies should ensure that Malaysia’s finances remain stable as the country works towards achieving a lower debt-to-GDP ratio. This approach reflects the unity government’s dedication to balancing fiscal responsibility with development needs, ultimately paving the way for a more resilient Malaysian economy in the years to come.

As Malaysia continues to make progress on its fiscal consolidation efforts, the country's ability to manage debt will likely become a model for other nations seeking to reduce their fiscal vulnerabilities. With measures in place to control public spending and enhance revenue generation, the future of Malaysia’s economic stability looks promising.

The decline in Malaysia's debt expansion rate is a positive sign that the government’s fiscal policies are working. As borrowing falls and fiscal deficits narrow, Malaysia is taking significant steps toward long-term financial health. "This trend demonstrates our dedication to ensuring fiscal stability in the medium term," concluded Anwar. With these steps, Malaysia is positioning itself for a more sustainable future, balancing debt management with robust economic growth.