A new report from Kenanga Investment Bank shows that Malaysia's expected slow economic performance in the second half of 2025 could potentially cause the government to breach the statutory debt limit of 65% of Gross Domestic Product (GDP).
According to Free Malaysia Today, Kenanga expects the federal government's debt to reach RM1.33 trillion, equivalent to 65.9% of GDP, exceeding the Finance Ministry's official estimate of 64%.
For the record, the national debt limit has been raised twice since 2020 from 55% to 60% during the COVID-19 pandemic, and subsequently to 65% to finance economic stimulus measures.
Kenanga also explained that an economic slowdown will cause a decline in nominal GDP, thus increasing the debt ratio. Financing needs for fiscal measures and development spending also contribute to higher debt levels.
Government measures such as the RM100 cash handout, the reduction in the price of RON95 petrol and the freezing of toll increases are seen as efforts to address the pressure on the people's cost of living. However, these initiatives also pose challenges to efforts to maintain fiscal discipline in the medium term.
Meanwhile, international rating agencies such as S&P Global and Fitch Ratings stated that the RM2 billion cash assistance allocation did not have a material impact on the country's fiscal position.
However, Fitch warned that continued delays in the implementation of fuel subsidy rationalization could jeopardize the target of reducing the fiscal deficit to 3% of GDP by 2028, thus putting pressure on the country's credit rating and future borrowing costs.
