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Mahathir Mohamad claimed that the Malaysian government could go bankrupt. Is there any truth in his claim?

Editorial

Malaysian former Prime Minister Mahathir Mohamad pointed out that “Malaysia’s national debt already reached up to RM900 billion (US$225 billion).” He suggested that if the government fails to pay its debts, “the country could go the way of Greece. We have more debt than Greece, but we are poorer than Greece. Once the government is unable to pay, our country will go bankrupt at any time.”

“The Pakatan Harapan alliance will have solutions for all the national issues, including reviving the economy”, added Mahathir. Malaysia’s opposition coalition recently appointed Mahathir as its PM candidate for the upcoming election.

The Malaysian government told a different story

Malaysian Prime Minister Datuk Seri Najib Razak denied Mahathir’s claim. “As of the end of June 2017, the Federal Government’s debt stood at 50.9% of Gross Domestic Product (GDP). This was still well below the prescribed 55% limit set by the government…In fact, it does not make sense to say that we would be bankrupt when there are many countries willing to invest and enter into trade agreements with Malaysia.”

Source: Trading Economic

Sources: MIDA, DOSM, ASEAN Briefing

The Finance Ministry also stated that “The government will always ensure that the repayments of principal and interest will be done as scheduled and on time. The government, to date, has never failed in paying on time”. “Fiscal consolidation measures will be continued to reduce deficit level in stages. This position could reduce debt level and the government’s need to borrow”, it added.

Malaysia’s national debt as of June 2017 stood at RM685.1 billion (US$171 billion). Of the RM685.1 billion (US$171 billion), 96.7% was domestic debt. 3.3% was foreign debt. Malaysia has its own currency. It can create money to pay the debts. But the government must take care not to cause inflation by issuing too much currency. But in this respect, the country is not near the brink of bankruptcy.

The prospect for Malaysian economy is good

BAV Consulting and University of Pennsylvania’s Wharton School surveyed 21,000 participants from four regions to find out the best countries for investment. They ranked Malaysia as the optimal investment destination in 2017. The survey took corruption, economic stability, the tax environment, innovation, the skill of the labour force, and technological expertise into consideration.

Malaysia is one of the most important nodes of China’s One Road One Belt Initiative. It stands to gain from this project. China has already funded US$11 billion in Malaysia’s East Coast Rail Link (ECRL). It also invested US$7.2 billion in Melaka Gateway deep-sea port.

All these signs indicate that Malaysia’s economy will keep growing. For now, there is no sign of bankruptcy on the horizon. Instead, the country’s economy shows great development potential. Mahathir needs to convince the people if he wants to criticise Najib’s government to win votes.