Govt debt rises to RM799.1b to fund deficit

The federal government’s debt stood at RM799.1 billion, or 52.7% of gross domestic product, compared with RM741.05 billion in 2018. The increase in national debt was mainly to finance the budget deficit to stimulate economic growth.

Despite the addition, the country’s national debt was still below the self-imposed limit of 55%, said the ministry of finance in the 2020 Fiscal Outlook and Federal Government Revenue Estimates report.

The debt comprised 96.3% securities denominated in ringgit, while the remaining 3.7% was offshore borrowings mainly in US dollars or Japanese yen.

Debt service charges to climb to RM34.9 billion in 2020

The country’s debt service charges are expected to increase to RM34.94 billion in 2020, from RM33 billion in 2019. The charges were at RM30.54 billion in 2018.

Debt charges will be the third-largest component of the government’s operating expenditure in 2020, accounting for 14.5%. The biggest component will be civil servants' emoluments (RM82.6 billion), followed by supplies and services (RM38.54 billion), according to the report.

The debt service charges are equivalent to 14.3% of the estimated government revenue of RM244.53 billion in 2020.

In 2019, debt service charges made up 12.5% of the government’s revenue, contributed by interest payment for domestic loans and offshore borrowings.

Of this, 99.7% was contributed by financing cost of market debt instruments, while the balance was payment related to project loans.

The bulk of govt debt in local hands

Resident holders of federal government debt remained well spread with holdings of RM609.1 billion, accounting for 76.2% of the total.

A diversified investor base supports an active secondary market for government securities, keeping funding costs low and stable.

Domestic holders primarily consisted of large and long-term investors, such as the Employee Provident Fund (29.3%), insurance companies (4.3%) and Retirement Fund (Incorporated) or Kumpulan Wang Persaraan (Diperbadankan) (3.3%). Meanwhile, banking institutions, development financial institutions and others collectively held 39.3% of the total, according to the report.

Non-residents held RM190 billion or 23.8% of total outstanding federal government debt.

Average time to maturity of national debt to increase to 8.1 years

The average time to maturity of national debt, indicating upcoming refinancing needs, is expected to increase from 7.6 years in 2018 to 8.1 years in 2019, after taking into account issuances for the year.

Hence, the maturity profile is more favourable, with an increase in the share of outstanding debt papers of above 10 years from 21.4% in 2018 to 25.9% as at end-June 2019. 

Meanwhile, short-term papers with a maturity of five years and below have been reduced to 43.5%, compared with 48.2% at end-2018.

Given the low-interest-rate environment, the government is expected to benefit from its strategy of issuing more long-tenured papers, leveraging competitive yields and investors’ preferences, said the report.