This article first appeared in The Edge Financial Daily on October 2, 2019

KUALA LUMPUR: Between development expenditure and managing the country’s debts, one cannot take sides, says Finance Minister Lim Guan Eng, stressing that both have to go hand in hand as long as it is contained within its means.

He said the government remains committed to capping the fiscal deficit at 3.4% of the gross domestic product (GDP) in 2019.

“We intend to stick to the target,” the minister said in an interview with Bernama yesterday.

“Even though we have a fiscal deficit, we do not run a twin deficit. We have been enjoying a current account surplus, which is very important. We are among the very few countries in the world without a twin deficit and it gives a lot of confidence,” he said.

A current account surplus means an economy is exporting a greater value of goods and services than it is importing.

The government’s total debts and liabilities stood at 75.4% of GDP in 2018, down from 79.3% in 2017, while direct debt increased to 51.2% of GDP from 50.1% previously.

Development expenditure must continue

Lim said the increase in direct debt was meant to finance the government’s fiscal deficit, especially development expenditure, even though the current government had not undertaken any new megaprojects.

“These are the development projects under the five-year plan (11th Malaysia Plan 2016-2020). Development expenditure must continue, especially in critical areas such as hospitals and public infrastructure,” he told Bernama.

Under the previous government, these deficits or shortfalls were covered by government revenues, he said, adding: “But we cannot do that under the present administration because we have to use some of it to pay off interest payment and debt obligations. For instance, we have begun paying for 1Malaysia Development Bhd’s (1MDB) interest and debt obligations.”

He said payments related to 1MDB would only increase over time before it starts to taper off after 10 years

Noting that the 1MDB debts and interests amounted to RM52 billion over a 20-year tenure, he said: “In 2020 alone, we are looking at an increase in debt payment interest of up to RM2 billion.”

There is room for contingency measures

Lim said the country's economy has remained solid despite the external headwinds with a 4.9% growth recorded in the second quarter (2Q) of this year from 4.5% in 1Q.

Hence, he said there is also enough room for contingency measures or stimulus packages if the global economy scenario warrants it.

“We still hope that the trade talks between the United States and China will be a successful one so that we can continue to enjoy sustainable economic growth,” he said.

Lim also said the government is still sticking to its three-year target to restore the country’s fiscal health.

“There are talks of a possible economic downturn next year [but] I don’t think it will affect our three-year rehabilitation of restorative programme to put Malaysia back on track by 2021 — fiscally speaking.

“With the right pre-emptive measures we should be able to stick to the three-year rehabilitative fiscal programme,” he added.