This article first appeared in The Edge Financial Daily on August 30, 2017

KUALA LUMPUR: While election-related projects leading up to the upcoming general election are likely to add to the government’s already high debt burden, economists that the The Edge Financial Daily spoke to said any uptick, if managed prudently, is not necessarily an evil thing.

However, one of them noted that the government’s relatively elevated debt level — at 53.2% as at June-end — together with contingent liabilities, may limit Malaysia’s flexibility to make use of fiscal tools to mitigate the impact of any adverse turn in economic conditions, as the International Monetary Fund highlighted in an April report.

“I second any move by the government to gear up its balance sheet if it is done in the name of welfare for the people. On a broader sense, this has a great multiplier effect, leading to greater economic activities and translating into increased productivity,” trained economist and veteran civil service officer Tan Sri Dr Ramon Navaratnam said.

But Ramon, who is also a director with the Asian Strategy and Leadership Institute, was quick to add that “with more borrowings, come greater responsibility and further oversight” by public stakeholders.

“Name me any country that does not borrow any money to develop and turn their nation into a better one? I am not concerned if any infrastructure projects require borrowing. I am looking at the grand scheme of things: good governance. We must borrow prudently, use it wisely and not spend it recklessly,” he said, adding that “if [borrowing is] done wrong, that’s a recipe for a disaster”.

As for a potential uptick in the government’s debts, particularly contingent liabilities, Ramon said it is not a cause for concern as it is “currently manageable”.

On Monday, RAM Rating Services Bhd noted that Malaysia’s guaranteed debts were around 15.2% of gross domestic product as at end-2016, and that an expected rise in large infrastructure and affordable housing projects ahead of the coming 14th general election is likely to raise the government’s already huge contingent liabilities.

“There could be a marginal increase in the contingent liability part, but I am not aware of any hard and fast rule, whether 15% — or 20% or even 30% — is the yardstick to measure the country’s financial health. As long as there is a proper match between the project’s scale and viability, and the intended outcome, then the government is free to increase its leverage higher, albeit at a cautious pace,” said Ramon.

To cushion the burden of government-guaranteed debts, Sunway University’s economics professor Dr Yeah Kim Leng said the government should consider project delivery models like public-private partnership.

“For the longest time, the government is the bearer of the capital expenditure burden for any infrastructure-related programme. Key to this question is the capacity of the government to finance the burden, and the resulting outcome: whether such large-scale project can yield maximum socio-economic returns,” said Yeah, who also sits on Bank Negara Malaysia’s monetary policy committee as an external member.

“As long as the infrastructure is run sustainably, then the government may recoup the cost directly via the charge to use such facilities, or indirectly, such as via taxation, as a result of increased productivity,” he added.

However, Yeah thinks Malaysia “has a tight room to move up the leverage chain”, as he feels the country’s debt burden — contingent liabilities and external debts of about 70% — is at a level where the government should “manoeuvre with caution”.