In light of rising global debt levels, Raghuram Rajan, former chief economist of the International Monetary Fund (IMF), has raised concerns about the sustainability of public debt, particularly in the United States. He warned that the escalating debt threatens financial resilience amid ongoing global crises and called for urgent action to reduce debt levels to prepare for future emergencies. Rajan's concerns align with the IMF's projection that global public debt will reach $100 trillion by the end of 2024, amounting to 93% of global GDP [28f6092b].
In the United States, the Department of Government Efficiency (DoGE) has been formed with the ambitious goal of cutting federal spending by at least $2 trillion by July 4, 2026. This reduction represents about 7% of the US GDP and nearly 30% of federal expenditure. Influential figures like Elon Musk and Vivek Ramaswamy have emphasized the need for regulatory rescissions and administrative reductions to achieve these goals [b1874f1c].
As of 2023, Malaysia's government debt reached RM1.173 trillion, reflecting an increase of RM92.918 billion (8.6%) from the previous year. This figure represents 65.4% of the country's GDP, with RM1.143 trillion sourced from domestic loans and RM29.851 billion from foreign loans. The Malaysian government is projected to spend RM54.7 billion on debt servicing in 2025, which surpasses allocations for economic and social services, highlighting the pressing need for effective debt management [42c410c1][b1874f1c].
Rajan has underscored the risks of being unprepared for crises due to high debt levels, stressing the importance of reducing debt to create financial buffers and enhance international cooperation [28f6092b]. In response to these challenges, the Malaysian government has set an ambitious goal to reduce its debt to 60% of GDP by 2030. To achieve this, it plans to decrease the fiscal deficit from 5.0% in 2023 to 4.3% in 2024. The introduction of the Public Finance and Fiscal Responsibility Act 2023 aims to enhance debt management and ensure that borrowing is used effectively for growth-generating projects [42c410c1].
Dr. Nungsari Ahmad Radhi has highlighted the importance of managing debt service charges effectively, as they consume a significant portion of the national budget. The Fiscal Responsibility Act aims to reduce budget deficits below 3% of GDP, emphasizing the need for Malaysia to ensure that development spending generates growth and diversifies revenue sources [b1874f1c].
Despite these measures, there are growing concerns about future generations potentially bearing the financial burden of current debt levels. Analysts emphasize the importance of utilizing debt wisely to foster economic growth, which is crucial for maintaining the nation's financial health [42c410c1].
In the broader context of global debt, the IMF has warned that public debt servicing costs are expected to rise by 10% for developing countries in 2024, exacerbating fiscal pressures [f4186bf4]. The IMF's Fiscal Monitor Report indicates that interest payments on this debt are consuming an increasing share of government revenue, raising concerns about fiscal sustainability worldwide. The report warns that current fiscal tightening efforts are deemed insufficient, and debt projections often underestimate actual outcomes [af1e6557].
As Malaysia navigates its own fiscal challenges, it must also consider the global economic landscape, where rising inflation and fiscal pressures are prevalent. The implications of high national debt are profound, correlating with low economic growth in many countries, including Japan and Greece, which have debts exceeding 200% of their GDP [5c4f83fc].
In conclusion, while Malaysia's debt levels are currently manageable compared to some global counterparts, the government must remain vigilant and proactive in its fiscal policies to ensure long-term economic stability and prevent future generations from facing undue financial burdens. Rajan's call for multilateral reforms and new trade avenues underscores the need for a coordinated global response to the rising tide of debt [28f6092b].