PM: Govt debt rises due to budget deficit, not new spending

KUALA LUMPUR: Prime Minister Datuk Seri Anwar Ibrahim has denied claims that the government is taking on new debt to finance its expenditure.

Instead, he said the country's total debt would continue to rise as long as the federal budget remained in deficit and was financed through borrowing.

Anwar, who is also finance minister, said government debt was cumulative, with each year's net borrowing adding to the outstanding debt from previous years.

"The Madani government took over the administration with existing debt exceeding RM1 trillion.

"New borrowing under the Madani government is used to finance national development, including schools, hospitals, roads, and water and electricity supplies.

"We also have to fulfil inherited financial obligations. In 2023 alone, RM13 billion was needed to settle 1Malaysia Development Bhd (1MDB) bonds," he told the Dewan Rakyat during Prime Minister's Question Time today.

He was responding to Lee Chuan How (PH-Ipoh Timor), who asked why the government had yet to reduce national debt to a more sustainable level and whether its fiscal position allowed it to intervene to protect the economy and public welfare should the conflict in the Middle East worsen.

Anwar said annual new borrowing had declined from RM100 billion in 2022 to RM92.6 billion in 2023, RM76.8 billion in 2024 and RM75.6 billion in 2025.

He said the sharp increase in government debt between 2020 and 2022 was largely due to the Covid-19 pandemic, which required additional spending on healthcare, public assistance and economic stimulus packages.

Anwar also rejected comparisons suggesting that previous administrations had maintained significantly lower debt levels.

He said some government expenditure before 2018 had been financed through off-balance-sheet arrangements, including government guarantees and public-private partnerships, which were not fully reflected in direct federal debt figures.

The broader debt and liabilities-to-gross domestic product (GDP) ratio stood at 80.3 per cent at the end of 2017, compared with 80.9 per cent at the end of 2022 and 80.7 per cent in June 2026.

Meanwhile, the federal debt-to-GDP ratio is projected to decline from 64 per cent this year to 63 per cent in 2027.

The fiscal deficit is also expected to narrow to 3.3 per cent of GDP in 2027, compared with 6.4 per cent in 2021.

"The deficit has been declining consistently," he said.

He said fiscal consolidation would not come at the expense of public welfare, with the 2027 Budget continuing to provide assistance and subsidies to cushion Malaysians against economic uncertainties.

These include RM16 billion for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara), RM18 billion for civil service salary increases and more than RM40 billion in subsidy commitments.