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Country’s debt will not necessarily burden future generations

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Zaidi Azmi
Written by Zaidi Azmi

KUALA LUMPUR – February 16, 2017: Economists are not unanimous in their views that the country’s debts will burden future generations.

According to latest figures from the finance ministry, the country’s national debt stands at RM630.5 billion, of which 96.6 per cent is domestic debt.

Economist Hisham H of the Economics Malaysia blog, pointed out that whether government debt accumulation will burden future generation depends greatly on who the debt is owed to.

He argued that if a large portion of the debt is domestically accumulated, such as by government agencies on behalf of the people, then the tax raised to pay for maturing the debts will eventually go back to the public.

One such agency is the Employees Provident Fund (EPF).

“All that occurs is a change in financial obligations and possibly some redistribution of wealth, but not a net burden on taxpayers.

“The Japanese, for example, are in effect lending to their government so that the government can spend it on them,” he wrote.

The same view was expressed by macro-economic analyst Professor Hoo Ke Ping who said that since the government is not a company, it is not a necessity for it to fully pay off its debts.

Hoo told The Mole that just because the government has accumulated billions of ringgit of debt it does not mean that it will go bankrupt.

“No need to pay all. Even with zero debt a government can still go bankrupt due to illiquidity, like what almost happened to Japan in 1998 and 2009 due to having insufficient US dollar.”

Nonetheless, Hoo said that accumulating too much domestic debts can lead to lesser economic growth.

Professor Zulkifli Senteri from Binary University insists that accumulating greater debt will eventually burden the people.

He thinks the government will need to expand or increase the tax base in order to pay off its debts.

“The money to pay the debt will come from the government through tax collection or selling of assets and no matter what happens, collecting taxes will burden the people,” said Zulkfili.

He is confident the government will impose higher taxes on the people if it accumulates more debts because people will only give loans to you based on your ability to pay off or service the loans.

“A government’s ability to pay or service loans depends on its sources of future income from taxes and selling of assets. So it is always good to keep the country’s debt as low as possible,” he said.

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About the author

Zaidi Azmi

Zaidi Azmi

Despite becoming The MOLE's journalist in 2014, he still has a hard time traversing the city. If he is not lost, this northern kampung boy can be found struggling to make some sense out of the Malaysian political sphere.