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ADS 653 Public Finance CASE Study

Public Finance (Universiti Teknologi MARA)

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ADS 653 PRINCIPLE OF PUBLIC FINANCE

FACULTY OF ADMINISTRATIVE SCIENCE AND POLICY STUDIES

(AM228)

PRINCIPLES OF PUBLIC FINANCE

(ADS 653)

CASE STUDY
MALAYSIA’S TOTAL DEBT, LIABILITIES ROSE TO RM1.17 TRILLION AS AT END
JUNE

GROUP 5
NAMAF9A

MEMBERS:
1. NOOR AZREEN BINTI ABDULLAH (2018237772)
2. NUR NADZIRAH BINTI NOOR AZIZI (2018484524)

Prepared for:
DR. ZARINA BINTI MOHD ZAIN

Submission Date:
24 JANUARY 2021

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TABLE OF CONTENT

1.0 Full Article for Case Study 3-4

2.0 Question No 1
Discuss the current scenario of Malaysia's debt. 5-6
3.0 Question 2
Does Malaysian debt consider chronic? 7
4.0 Question 3
Discuss the recovery efforts undertaken by the Malaysian 8 - 10
Government to resolve its debt issues.
5.0 References 11

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1.0 The Article

MALAYSIA’S TOTAL DEBT, LIABILITIES ROSE TO RM1.17 TRILLION AS AT

END JUNE

Malaysia’s total debt and liabilities rose to RM1.17 trillion or 77.1% of gross
development product (GDP) as at end-June 2019, from RM1.09 trillion or 75.4% of
GDP at the end-2018, according to the Ministry of Finance's 2020 Fiscal Outlook and
Federal Government Revenue Estimates, released today.

The 7.3% increase in total debt and liabilities during the half-year period was due to
an increase in Federal Government debt and committed guarantees, which stood at
RM799.1 billion and RM157.3 billion as of end-June, or 52.6% and 10.4% of GDP,
respectively.

In contrast, Federal Government debt as of end-2018 stood at RM741 billion (51.2%

of GDP), while committed guarantees added up to RM132.7 billion (9.2% of GDP).

“Apart from the Federal Government debt, other obligations exposure of the
Government are committed guarantees, 1Malaysia Development Bhd’s (1MDB) debt
and other liabilities which include estimated cash commitments of public-private
partnerships (PPP) and private financing initiative (PFI) projects,” the report stated.

As of end-June, 1MDB debts totaled RM32.2 billion, or 2.1% of GDP, while other
liabilities amounted to RM181.7 billion or 12% of GDP.

Some RM920 mil recovered from 1MDB assets as of June.

Malaysia has received about RM920 million from recovered assets related to
1Malaysia Development Bhd (1MDB) as of end-June 2019, which will be used to
serve the insolvent fund’s debt obligations, according to the Ministry of Finance.

As of end-June, the Government has extended an advance of RM8.9 billion to 1MDB

for debt servicing, the MoF's Economic Report 2019/20 shows.

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The Ministry said the Government is in pursuit of recovering other assets related to
1MDB, but maintained that the recovery process is expected to take some time due
to legal requirements and negotiations.

This is as most of the assets are currently located abroad, such as in Singapore,
Switzerland, and the US.

Based on the Parliament’s Public Accounts Committee report, the Pakatan Harapan-
led government has had to assume 1MDB’s entire obligations, including debt
principal of RM32.19 billion, due to mismanagement and poor governance.

https://www.theedgemarkets.com/article/malaysias-total-debt-liabilities-rose-rm117-
tril-endjune

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2.0 Question 1

Discuss the current scenario of Malaysia debt.

Government debt sometimes is also known as Public Borrowing or Public Debt

which refers to the loans raised by the government that represents the total
outstanding debt. That outstanding debt is often revealed as a ratio of Gross
Domestic Product (GDP). The loans can become from various sources either
internally or externally and it is an important resource for the government to finance
all the public spending and funding public programs, activities, and projects
[ CITATION Foc20 \l 1033 ]. In other words, government debt will allow flexibility to
the government overspending rather than keep cutting the spending.

According to Mohamed Aslam, borrowing increases government debts. These

become the factors that determine the progress of the macroeconomics that will
affect the budget deficits which involved investment, interest rates, money supply,
exchange rate, and many more [ CITATION Moh19 \l 1033 ].

The government is allowed to into debt in order to do development expenses. The

Federal Government needs financial funds to cover the cost of operating cost and
government activities as well as certain allocations for development purposes. All of
these financial funds have come from revenue collected every year. In the current
situation, the revenue of the government is not enough to cover all expenses that
have been made by the government (Team, 2019). That is why the government
needs to borrow from outside in order to cover the expenses.

The current scenario in Malaysia's debt currently under control. Based on what has
Deputy Finance Minister said that the nation’s cumulative amount of debt is RM823.8
billion. This debt still within the statutory ceiling of 53.6% of the nation’s gross
domestic product (GDP). Currently, there are rumours that the current government

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debt is at RM1.264 trillion. Actually, that value is included government liability

exposure and commitments (MARTIN CARVALHO, 2020).

Currently, the government has increased the debt of the country. This is to cover the
current situation that has occurred in Malaysia which is Malaysia is no exception
facing covid-19 dynamic. Starting on 23rd January 2020 The Ministry of Health
through the centre of National Crisis Preparedness and Emergency Response
Centre (CPRC) has received three cases which were infected coronavirus 2019
(2019-Nov) (Harian, 2020). The beginning of this epidemic, here is various aids such
as medical quarantine place to treat patients who were infected with the virus.

Although Malaysia has the ability to print banknotes, the government still cannot do it
arbitrarily. This is because Malaysia already experiencing the depreciation rate of the
ringgit. This is because there are many notes of Malaysia in a foreign country. If
Malaysia keep print the banknote, Malaysia will be same as Zimbabwe and
Republic of Weimar. On top of that, not only did Malaysia increase their debt others
country also increase their debt in order to cover the expenses during this pandemic
of Covid-19 (Loh, 2020).

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3.0 Question 2

Does Malaysian debt consider chronic?

In order to know if the current Malaysia debt is chronic or not we need to base it on
the fiscal deficit. Fiscal deficit can be defined as the shortage of government revenue
compared to expenses incurred [ CITATION Ada20 \l 1033 ]

Currently, fiscal deficit of Malaysia is 6%. This figure show that the fiscal deficit is
increase. Besides, it’s also showed the current fiscal deficit is the largest gap since
the Global Financial Crisis in 2009. The reason why fiscal deficit of Malaysia
increase is because there is additional stimulus package by the government to
people during this pandemic's situation [ CITATION Won20 \l 1033 ].

On 2019 the fiscal deficit was at 3.2% compared with 3.4% recorded in 2019. This
report has been issued by the Ministry of Finance. Although the fiscal deficit shows a
high value, the minister of Ministry of Finance Tengku Datuk Seri Zafrul Abdul Aziz
said that government believe that fiscal deficit of Malaysia will be decrease in stage
over a medium period. Besides, Tengku Zafrul also said that all the measures
announced in the country’s economic stimulus and recovery package involving direct
fiscal injections amounting to RM45 billion are “one-off” and will not continue to
burden Federal Government’s finance in the medium and long term. In addition, with
this fiscal injection it was the strategies by the government to reduce the fiscal deficit
and so on to ensuring the country fiscal position and debt remain under control
[ CITATION Zan20 \l 1033 ].

Despite the rate of fiscal deficit is increase, the government of Malaysia never fails to
pay off debts. According to the deputy minister Ministry of Finance, the government
never failed to pay its debts according to set schedules. Currently, Malaysia has a
reduction in national income, but the Ministry of Finance will figure out the best
strategies to gain and increase the revenue of the country [ CITATION BER201 \l
1033 ].

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4.0 QUESTION 3

Discuss the recovery efforts undertaken by the Malaysian Government to resolve its
debt issues.

Due to the Covid-19 pandemic, Malaysia is experiencing an increase in debt which

caused an increase in the percentage of Gross Domestic Product (GDP) [ CITATION
Min201 \l 1033 ]. But referring to Budget 2021, it states that Malaysia is on the path
to economic recovery. This is due to approaches and strategies implemented by the
government of Malaysia in ensuring the stability of economic growth and increasing
the government revenue.

That is why Malaysian Government take the best methods and strategies to curb the
country’s debt problem. Among the approaches and strategies taken by the
government are as below:

4.1 Implementation of Economic Stimulus Packages

The government took action by introducing the Prihatin Rakyat Economic Stimulus
Package (PRIHATIN) that is worth RM250 billion which will benefit every citizen of
the country. Under this stimulus package, RM128 billion was used to promote the
welfare of citizens, RM100 billion was used to support businesses, and RM2 billion
was used to strengthen the Malaysian economy. The low-income community in
particular will reap the benefits of the package [ CITATION Pri201 \l 1033 ].

Under the same package, the front-liners including healthcare staff, military
personnel, civil defense, RELA, policemen, and customs are given special
allowance. Additionally, under the Bantuan Prihatin Nasional, the government spent
about RM10 billion in one-off cash assistance to the M40 group and below. However,
the Bantuan Sara Hidup is still ongoing to alleviate the financial difficulty faced by the
citizens of Malaysia. Through this package, the citizens are seeing other benefits
such as the ability to withdraw from the retirement scheme without facing any tax

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penalties, the mySalam package, a one-month rental exemption for Projek

Perumahan Rakyat (PPR), and a six-month lease exemption on all premises owned
by the federal government such as canteens, convenience stores, nurseries, etc. In
addition, the government has spent RM600 million for the telecommunication and
multimedia industry to provide free internet to citizens, including widening the
network coverage and capacity. The strategies and measures that will be
implemented are based on current fiscal capability [ CITATION The202 \l 1033 ].

Through National Economic Recovery Plan (PENJANA), the government is seen to

be very responsible in taking care of the welfare of the citizens. The government is
committed to honouring the duties and responsibility bestowed upon them. through
the e-Penjana, government spend rm50 for each of every citizen just to encourage
the usage of e-wallet to boost consumer spending. While referring to the
International Monetary Finance (IMF) in April 2020, the growth of the world economy
is at a negative rate. However, this stimulus package succeeded in saving 2.4 million
jobs and this indirectly supports the companies operating in Malaysia. With the
theme of Bersama Menjana Ekonomi, the government identified three major
principles which are empowering people, propelling businesses, and stimulating the
economy. Overall, this package is a direct fiscal injection from the government
[ CITATION BERer \l 1033 ].

4.2 6 R Strategy

All that has been stated previously are connected to the 6R strategy which was
introduced by the Malaysian Government. The 6R stands for resolve, resilience,
restart, recover, revitalize, and reform. The government focuses on every strategy
through the implementation of several economic stimulus packages as mentioned
above. To illustrate this, through the PRIHATIN stimulus package, the government
aims to support and protect the people and at the same time eases business cash
flow [ CITATION Kul20 \l 1033 ]. For instance, direct cash assistance to households
and funds for businesses. Another example is through the Employees’ Provident
Fund (EPF), i-Lestari was introduced which is worth RM40 billion where contributors
are allowed to withdraw RM500 a month from their retirement fund. Furthermore, the

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government has spent RM10 billion to help SMEs under a subsidy program (WSP)
and PRIHATIN Special Grant [ CITATION Min201 \l 1033 ].

Therefore, from the economic stimulus package that has been introduced, shows
that the Malaysia Government wants a positive flow of money in the national
economy. This is very important in maintaining economic stability from various forms
and angles where it will generate income for the country in particular

Other than that, fiscal policy can be described as government spending and the use
of taxation to influence the economy. Through fiscal policy, the government manages
the economy to reach a high rate of economic growth to keep prices and wages
stable. Under the government’s 2021 budget, increased revenue is foreseen on the
back of higher tax collection which is contributed by economic recovery, and a lower
deficit is expected in 2021 compared to the previous year. This lays down plans for
fiscal consolidation until 2023 [ CITATION JAM201 \l 1033 ]. However, this depends
on the progress of the pandemic and the government’s ability to execute its spending
plans. Budget 2021 aims to carry more expansionary and inclusive measures to
guide the economy out of recession and into post-recovery growth. This can be done
only if efficient spending and proper execution are done by the government to
revitalize the economy [ CITATION Mal \l 1033 ].

In conclusion, the government’s plan whether through the 6R strategy which includes
the economic stimulus package and fiscal policy ensures that the government can
reduce its debt. This is because the economic process will continuously flow.
Whether direct or indirectly, this will increase the government’s revenue. Therefore,
the government will make certain that they devise strategies or plans in the future in
an effort to increase the current revenue.

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References
Focus Economics. (2020). Retrieved from Public Debt (% of GDP):
https://www.focus-economics.com/economic-indicator/public-debt

Mohamed Aslam, R. J. (2019, May 11). IntechOpen. Retrieved from Budget Deficit
and the Federal Government Debt in Malaysia:
https://www.intechopen.com/books/perspectives-on-economic-development-
public-policy-culture-and-economic-development/budget-deficit-and-the-
federal-government-debt-in-malaysia

Ministry of Finance. (2020, December). Budget 2021 Official Website. Retrieved from
Budget 2021: http://www1.treasury.gov.my/index.php/en/

Prime Minister's Office of Malaysia Official Website. (2020, March ). Retrieved from
Prihatin Rakyat Economic Stimulus Package (PRIHATIN) :
https://www.pmo.gov.my/2020/03/speech-text-prihatin-esp/

Market, T. E. (2020, November ). Retrieved from Federal govt debt to increase to

61% of GDP in 2021: https://www.theedgemarkets.com/article/federal-govt-
debt-increase-61-gdp-2021

BERNAMA. (September, 2020). Retrieved from National Finance Under Control

Despite Implementing post- COVID 19 Recovery PLan:
https://www.bernama.com/en/business/news_penjana.php?id=1876032

BERNAMA. (2020, SEPTEMBER). Retrieved from National Economic Recovery

Plan (PENJANA): https://www.bernama.com/en/business/news_penjana.php?
id=1876032

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CHEN, J. (2020, AUGUST 17). Retrieved from The Golden Rule of Government
Spending: https://www.investopedia.com/terms/g/golden-rule.asp

Kullabs. (2020). Retrieved from Government Borrowing and Budget:

https://www.kullabs.com/class-12/economics-1/government-
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Malaysia Kini. (2020, June 6). Retrieved from Malaysia to double deficit to fund
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Heyes, A. (2020, March ). Instopedia. Retrieved from Fiscal Deficit:

https://www.investopedia.com/terms/f/fiscaldeficit.asp.

Lin, W. E. (2020, November 6). Retrieved from Malaysia’s fiscal deficit rises to 6% of
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Mutalib, Z. A. (2020, July 21). BH Online. Retrieved from Kerajaan yakin defisit fiskal
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