Questions surrounding Malaysia’s National Debt have increasingly become a topic of concern. This, in no small part, has been driven by the recent ‘debt crisis’ in the U.S., where discussions were raised that the U.S. may default on its Debt. 

The first time Malaysia’s National Debt gained significant attention was in 2018 when the Pakatan Harapan administration revealed that Malaysia had amassed a National Debt of RM1 trillion. At that time, the ‘Tabung Harapan’ was established, where Malaysians collectively ‘donated’ RM203 million to assist the Malaysian Government in servicing its Debt.

Fast forward a few years later – this sum of RM203 million pales compared to how much the Debt has grown since 2023. As of 2023, Malaysia’s National Debt stands at RM1.5 trillion, according to Anwar Ibrahim, the PMX himself, which represents more than 60% of the debt-to-GDP ratio. When discussing the debt, Anwar Ibrahim emphasises the importance of fiscal prudence. For instance, he notes that wage increases for civil servants will have to be delayed, given that increasing wages will lead to a rise in debt, decreasing investor confidence in Malaysia.

 At a glance, this looks troubling. At face value, RM1.5 trillion is a significant amount, which means that assuming there are 31.471 million Malaysian citizens, each Malaysian would owe approximately RM47,662.92. Particularly for the youth, this amount exceeds the average fresh graduate salary and surpasses the savings of many individuals. Given the rise in the debt levels in the past five years, one can assume it will likely continue to increase.

 This sets the background for this research piece. Here, we will: 

  1. Explore everything you need to know about The National Debt,
  2. Discuss whether you should worry, and 
  3. Provide insights into what can be done

But in short, there is no need to press the panic button – you probably won’t have to pay anyone RM47,662.92.

Everything you need to know about The National Debt

The first are the figures as they stand, which are: RM1.2 trillion, and if we include liabilities, the Debt is RM1.5 Trillion.

Looking at the latest data from Bank Negara Malaysia, the Current Liabilities of Central Government Debt amounts to RM1.12 Trillion, and the Debt guaranteed by the Federal Government is RM317.024 billion, totalling approximately RM1.5 trillion. The most pressing question is who this money is owed to. 

The reality is that this money is owed to fellow Malaysians. Government debt is not like household debt – when discussing government debt, we are referring to government bonds. By stating that the Debt is owed to fellow Malaysians, we mean that the largest holders of Malaysian government debts are institutions like the Employee Provident Fund (EPF), the Malaysian pension fund. While the latest data could not be found – the best estimate is that as of 2020, Malaysians held roughly 76% of government debt, while foreigners held 24%.

Why are bodies like EPF holding government debt? 

Government Debt plays a vital role in financial markets. Another way to think about bonds is that it is a financial security (a tradable asset) that supports the markets. Government bonds, especially those issued by stable governments, are seen as a form of investment that is very low risk and offers a decent return. When we discuss investment opportunities, it may be helpful to think of the risk-reward relationship in the form of a scale where;

On the lowest end: Keeping your money in a bank is extremely secure but yields little return. (The likelihood of you losing money from a bank collapse is extremely low, as banks are typically considered too big to fail and will most likely be bailed out by the Government in times of crisis)  

On the highest end: Investing your money in the stock market, where the potential yields could be infinite, but given a company could go bankrupt, has higher risks of losing your money.

A government bond, assuming the country is in sound economic health, is considered a relatively safe investment. Hence, for pension funds on a large scale, these are a great form of investment due to their low risk and decent yield! If the Malaysian Government fails to fulfil its bond payments, you would have much bigger problems than the state owing you money (as seen in the case of Sri Lanka).

Now – we can turn back to The National Debt – and further break down the figures.

Our National Debt is split into two categories: domestic and external. Domestic Debt includes debt and liabilities owed by governments to lenders within the country.

 External Debt, on the other hand, refers to the same concept, but the debt is owed to non-residents of the country, which includes private commercial banks, foreign governments, foreign bondholders, or international financial institutions (e.g., IMF).

 The National Debt is categorised into short-term debt, medium-term debt and long-term debt.

 As of Q1/23, short-term debt is RM43 billion, while medium-term and long-term debt stands at RM1,077.412 billion. Since debts are government bonds, short-term debt refers to bonds that are due to expire and need to be repaid by the Government. This figure is far less daunting than the overall debt figure. If you think about it – if the Government of Malaysia can collect RM1387 in taxes from every Malaysian directly or indirectly, then the short-term obligation can be settled. Federal government revenue in Malaysia in 2022 stood at RM234 billion, so there should be no issue with meeting short-term debt obligations.

The next thing to explore is a concerning figure – the debt-to-GDP ratio.

Per Fitch Ratings, a ratings agency, Malaysia’s debt-to-GDP ratio is projected to grow to 73.3% in 2023, before easing to 72.6% in 2024. At first glance, this seems concerning, and perhaps being so close to 100% is too close for comfort. 

But before we dive deeper into the mechanics behind a debt-to-GDP ratio – did you know Singapore has a debt-to-GDP ratio of 168%? This measurement was conducted by the International Monetary Fund, but there isn’t much panic from our neighbouring country to the south. This is because when calculating Singapore’s Net National Debt, the country owes nothing. Net National Debt deducts bonds that the country holds, and the remaining ‘debts’ are mainly kept in Singapore’s banks and serve as a financial instrument supporting the complexities of the financial market. Hence, it may be prudent for the Government to consider the ‘Net National Debt’ – given a large amount of Malaysian Debt is held by Malaysian institutions. If we were to ‘Look East’ again, as we did in the 80’s – Japan has a staggering debt-to-GDP ratio of 227%, but there is little panic about the underlying foundations of the Japanese economy.

Returning to the debt-to-GDP ratio, studies have been conducted, such as the work of Lof and Malinen (2014), which found no robust evidence for a direct impact of Debt on growth in 20 developed countries. Recent studies also argue that it is not a significant cause for concern if countries exceed a debt-to-GDP ratio of 100%. What is more important for emerging markets may be when Debt is held in other currencies instead of their local ones. 

If we wanted to explore other numbers surrounding Debt, like the scary ‘Debt Clock, the reality of this number, per economist Stephanie Kelton, is that

“‘The debt clock simply displays a historical record of how many dollars the federal government has added to people’s pockets without subtracting (taxing) them away'”

We’ve illustrated that these numbers should not be taken at face value. Theory and reality often diverge, and as evidenced by the cases of Japan and Singapore, taking a closer look at Malaysian Debt Figures, the RM1.5 trillion figure is less staggering than it initially appears.

However, this does not mean ‘The National Debt’ doesn’t matter. Arguably, the more important thing is this – good fiscal management to ensure the Debt does not balloon. 

One of the best examples of this is the 1MDB scandal, and while many are exhausted by the discussion surrounding the Sovereign wealth fund, it is worth repeating as an example of ‘Bad Debt.’ Bonds were raised with very little in productive spending, and given these are bonds guaranteed by the Malaysian Government, they must be repaid.

Ideally, a government bond should be successful if the Government raises RM300 to invest in something that generates a value of RM1000. Not only does this cover the bond repayment and interest, but also effectively reduces the daunting debt-to-GDP ratio.’

We can, however, move on from 1MDB – despite its magnitude and importance – to highlight other aspects of the Malaysian political economy that can illustrate why fiscal prudence is essential.

The Littoral Combat Ship scandal, unearthed by The Centre to Combat Corruption and Cronyism, arguably shows how contracts can be awarded to political allies. Not only are government resources being used for ‘extractive rent-seeking purposes,’ but the disproportionate costs will consequently result in inefficiencies and wastage of public funds.

Another topic worth discussing is ‘Off Budget Projects’ that seems part and parcel of the Political Economy. Projects like MRT1, MRT2, MRT3, ECRL, and 1MDB were made on an “off-budget” basis, meaning that budgets did not go through the process of deliberation and approval in Parliament. Efforts to prevent leakages have been undertaken by the Anwar government, including budget revisions for the MRT3 project.

The key point to illustrate is ultimately, tighter fiscal spending focused on productivity is more important than just implementing ‘budget cuts across the board.’

Namely, spending should be productive: used in a way that generates investments and covers the cost of raising bonds. Increasing fiscal oversight to ensure accountability is key. Government contracts and associated spending should be closely scrutinised. Policymakers should be held accountable to reduce any instances of ‘skimming off the top,’ namely by businesses who may see ‘government contracts’ as an opportunity for ‘rent-seeking’. There is a fine line to walk, as excessive project oversight (e.g., scrutinising and nit-picking on every funding stage of a project) may create excessive red tape that hinders project progression. An extreme example would be needing deliberation on the cost of printing materials in Parliament.

In sum, simply focusing on the figure of the national debt and cutting spending may be short-sighted. Malaysia faces a middle-income trap, with many individuals stuck in low-skilled work, and the underlying infrastructure issues are well-known. More productive spending, coupled with expanding the tax base to include those who currently do not pay, may be a way for Malaysia to prosper in the coming years.

Could Malaysia go bankrupt?

Probably not, given our debt is largely denominated in our own currency, and our ‘creditors’ are Malaysians.

Countries that have experienced debt crises, like Sri Lanka and Argentina, have their debts denominated in U.S dollars and are largely held by foreign funds – which don’t necessarily have the best interest of countries in mind.

But if we were to explore how Malaysia could go bankrupt

  • We’d begin to default on our debts and monetary obligations (such as subsidies and salary payments).
  • Credit rating agencies would downgrade our ‘ratings’ at the international level, effectively blacklisting the nation.
  • This would signal international investors to withdraw their money in fear of losing it all.

We could default if;

  1. Uncontrolled spending on low-return projects 

Low-return government projects are generally considered as infrastructure, monetary incentives or subsidies that do not adequately stimulate the economy to grow. For example, imagine spending millions to build a primary school in a retirement village.

The costs of funding and maintenance accumulate over the years, diverting away significant portions of funds that could have been used for more productive projects or incentives to boost economic development. 

  1. Excessive embezzlement of funds through corruption.

Missing amounts resulting from embezzlement by corrupt officials (civil servants, politicians), from top to bottom, has to be written off as a loss of funds if the government is unable to track and recover the embezzled funds.

The 1MDB scandal added approximately USD 51.11 billion to Malaysia’s debt, as the embezzled funds have yet to be recovered by the government. Should the amount of money lost to corruption be much higher, the accumulated debt will become increasingly unserviceable. 

  1.   Lack of reliable government revenue 

 Government debts cannot be paid if there is no reliable source of income either from taxes, dividends from state-owned enterprises, or interest payments received as creditors. 

 The question of “What can I do about the rising national debt” can be surmised with:

  • Pay your taxes.
  • Keep a watchful eye (or ask your elected representatives) to closely scrutinise all forms of public spending.


Researcher(s): Muhammad Bahari, Seow E Kin Zane Ryan Kate Ng Jia Yi, Foo Siew Jack, Malcolm Wong

Reviewer(s) & Editors: Angellina Choo



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C4 Centre. (2022, September 21st). The Littoral Combat Ship (LCS) scandal – the crooks and villians behind Malaysia’s defence procurement laid bare. C4 Centre

Chester Tay. (2023, Feburary 24th). Fed govt debt likely to rise to 62% of GDP by end-2023 on higher borrowings to fund 12MP, 1MDB bond redemption. The Edge Malaysia

Dr. Temjenmeren Ao. (2021, September 7th). The Political Change in Malaysia and its Economic Implications. Indian Council of World Affairs

Fitch Ratings. (2023, March 9th). Rating Report Malaysia. Fitch Ratings

Investopedia. (2023, May 25). National Debt: Definition, Impact, Key Drivers. Investopedia

Matthijs Lof and Tuomas Malinen. (2014). Does sovereign debt weaken economic growth? A panel VAR analysis. Economics Letters 

Rex Tan. (2023, February 24th). Budget 2023: Putrajaya to revise MRT3 project costs, with lower RM45b estimate. MalayMail 

Rosli Khan. (2022, August 21st). Is there a need for MRT3?. FreeMalaysiaToday

Stephanie Kelton (2021, January 24th). The Deficit Myth : Modern Monetary Theory and the Birth of the People’s Economy.

Su Wei Ho. (2021, May 21). 6 interesting facts about our government debt. Free Malaysia Today

Teoh Pei Ying, Farah Adilla. (2023, January 17). Malaysia’s national debt now at RM1.5 trillion, or over 80pct of GDP. New Straits Times

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