by Samirul Ariff Othman, 02 Sept 2025
Malaysia’s fiscal position is often dressed up in comforting words: consolidation, discipline, resilience. Strip away the jargon and the picture is starker. The government is still living beyond its means—though not as recklessly as before.
Borrowing to Build, Not to Run
In 2023, Putrajaya recorded a deficit of RM91.4 billion, financed almost entirely by RM92.8 billion of domestic borrowing. In 2024, the pattern repeated: RM79.2 billion deficit, RM77.1 billion borrowed onshore. For 2025, the government still expects an RM80 billion shortfall.
The silver lining is that Malaysia’s revenues cover operating expenditure—salaries, pensions, subsidies. In other words, the state is not borrowing to pay its bills. The deficits arise from development spending—roads, railways, energy projects—that cannot be funded from current revenues. This is closer to a “golden rule” of fiscal policy, but it is still deficit living.
Borrowing at Home Buys Time, Not Safety
Malaysia borrows almost entirely in ringgit. Offshore debt has shrunk to barely one percent of GDP. That shields us from currency swings, but it does not mean safety. Domestic debt already stands at 64% of GDP—dangerously close to the 65% ceiling under the Fiscal Responsibility Act.
When the government dominates the local bond market, it crowds out private credit. Entrepreneurs and businesses pay the price through higher financing costs. Worse, with debt this high, any external shock—a global downturn, an oil price collapse, a regional crisis—would leave us with little fiscal room to respond. Borrowing in ringgit does not exempt Malaysia from the hard limits of debt.
The Real Test: Returns, Not Ratios
Debt is not inherently bad. Singapore borrowed to build Jurong in the 1960s, and the returns transformed the economy. But that was borrowing for productive assets, not politically expedient projects.
The real test for Malaysia is not the size of the deficit or the headline debt-to-GDP ratio. It is whether borrowed funds generate growth that outpaces the cost of debt. If the money builds competitiveness, productivity and jobs, it is investment. If not, it is just consumption by another name.
For now, the structure is clear: a small operating surplus, but a large development deficit financed by bonds. Unless discipline improves—or returns rise—the pattern cannot continue indefinitely.
The Verdict
Three points stand out. First, Malaysia is still living beyond its means. Operations are paid for, but development is mortgaged to the future. Second, borrowing domestically reduces external risk but squeezes local credit and narrows fiscal space. Third, the crucial question is whether borrowed ringgit are building tomorrow’s capacity or tomorrow’s regrets.
Malaysia has narrowed its deficit from 5.0% of GDP in 2023 to a projected 3.8% in 2025. That is progress, but the margin for error is gone. Every borrowed ringgit must now deliver more than it costs. Otherwise, the day will come when the debt is high, the growth is low, and Malaysians will ask: where did all the money go?
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Samirul Ariff Othman is a public policy analyst, economist, and international relations commentator. He is an adjunct lecturer at Universiti Teknologi Petronas and a senior consultant with Global Asia Consulting. The views expressed in this op-ed are entirely his own.