Malaysia Plans to Borrow Money from Japan Amid 1 Trillion National Debt - What You Must Know

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1. Malaysia prime minister Tun Dr Mahathir has expressed his intention to borrow from Japan to lighten the financial stress on the Finance Minister. The move is expected to trim down the interest payable on current national debt.

2. It is normal for governments to borrow money to develop their countries. In most cases, the borrowing are deemed beneficial as long as the economic stimulation from the borrowed money overweights the cost of borrowing.

3. Compare Singapore and Malaysia, GDP of Singapore is at USD 297Bil while Malaysia stood at USD 296.4Bil, which was similar (latest data available, year 2016). Singapore debt estimated at USD 532Bil, while Malaysian new government claimed the national debt to be USD 272Bil. The charts below shows a clear comparison between the debts of Malaysia vs Singapore, and their GDP. If you have no economic background, GDP simple means how much value of goods and services the country people has produced for the year.

Figure 1

Figure 2

4. Refer to Figure 1, the GDP of Singapore was slightly more than Malaysia, despite having much smaller land, no resources, and smaller population. Something is very wrong but it's not today's focus. Now the new government is telling the people that Malaysia debt is in a very bad shape, citing that the debt is already at 80% of current GDP according to their estimates.

5. Comparing the current debt estimation against the 2016 reported GDP, Malaysia debt to loan ratio was 92%. What does this percentage mean? Do you think that once a nation's debt reach 100% of  GDP, it will go bankrupt? If you think it will, please look carefully again at Singapore's national debt to GDP ratio. It's at whopping 179%. Did Singapore go bankrupt? No, they are doing very well, even better than Malaysia in terms of average income per person.

6. How does this happen? I give you a simple example:
You have a food stall that sell RM 10,000 food a month.
From there, you make around RM 3,000 net profit a month.
You borrow RM 10,000, for 30 years from ABC bank to buy ingredients and machine.
Bank requires you to pay RM 60 a month for next 30 years until the debt and interest is cleared.
Does owing RM 10,000 to bank make you bankrupt? 

NO.

7. While it's good to keep the national debt low, a higher national debt or 100% national debt to GDP ratio does not guarantee national bankruptcy. IT IS NOT A DIRECT EQUATION.

8. Tun Dr Mahathir borrow from a low interest nation is a strategic move. From current debt portfolio, there are some debts with high interest up to 6.66% per annum. Japan policy rate is now at -0.1%. If Malaysia is able to secure a USD 5Bil(apprx RM 20Bil) loan from Japan at 1% interest rate to settle the high interest debt, that will save 5.66% interest for the amount, which could be apprx USD 283mil (RM 1.13B), ideally.

9. However, if Malaysia were to borrow from Japan, Japan will have the says on the allocation of the fund. We might not be able to offset the high interest loan with all moneys borrowed. In this case, with little interest written off from the debt, we are actually pilling up more debt. If we can only use USD 1Bil to settle the existing debt, that would add USD 4Bil to our existing debt portfolio.

10. Not all political moves should be viewed numerically. With this loan, we might see increased  trades and technical support from Japan. This is very beneficial to Malaysia in the long run. The money borrowed can be spent on infrastructures and fiscal loosening. The key objective here is not so much to reduce the debt of the country to 0, but more on increasing Malaysian's productivity and our spending power.

11. The main reason to postpone the RM55B HSR project shouldn't be the national debt level. This is misleading. With inflated project costing, be it at high or low national debt, the project need to be re-assessed.  The affordability of the expensive ticket is one thing, the time taken for the project to break even is another argument. Consider from the government financial perspective, the ticket fee vs construction cost break even period calculation model has underestimated the domino effect of economic impact it might bring.

12. Government gets tax income one way or another when there is a good or services created, whenever there is a value creation process. Don't underestimate the power of RM1 note. When the note is transacted for 4000 times in a year, it creates RM 4,000 GDP. Along the 350km railway, imagine property developers build and sell RM 300B worth of property in 10 years to come from the spillover effect of HSR, government would have generate hell lot of taxes from there (eg, company and staff income tax, import tax for materials, SST,  etc ). What about the tourist spending? Singaporean weekend visit to spend and have fun? New jobs created, new business opportunity, new technical and technological exchanges. Think independently, HSR is not a bad project at all. Re-tendering the project to involve more local, at lower cost, it will be a game changer for Malaysia.

13. Malaysian debt is not as scary as the political propagandist want you to believe. As long as we can increase our productivity, work harder, create more wealth and value, Malaysia will have no problem paying the debt and WILL NOT GO BANKRUPT. Even with RM 1 Trillion debt, with 32 million malaysian, each will bear only RM 31,250 of debt . Today if you buy a Toyota Vios with RM 25k D/payment, you already owed more than RM 31,250. So you get the concept?

14. The government should prepare a platform for domestic business to grow. Elevating the competitiveness and productivity of local businesses against international player is a must. Empowering the people with knowledge and technical competency is a must. Educating the people with the right value, culture and mindset is a must. Finding excuses to buy time for delaying manifesto, is a shame. Do what you must, and lead the rakyat by example, and create a high competitive nation. Happy New Malaysia, Happy New Merdeka.

15. If you love Malaysia, if you want Malaysia to be great again, if you want to have New Malaysia where people is the boss to their government, spread the awareness to more people. Knowledge and awareness is the key. If people are still easily manipulated by political lies, Malaysia will never change. Changes start from Rakyat. Share this out!