Defusing Malaysia’s RM1.5 trillion debt time bomb

 

Government debt – not just in Malaysia but around the world – is growing. Not only is it growing, but its rate of growth is also increasing. If you ask economists, they’d give you a laundry list of reasons why this is happening. And they might be right (though, arguably, they often are not).

But they usually don’t give enough weightage to the underlying reason our debt is ballooning. Both because it seems almost too painfully simple and because their livelihoods depend on them providing a fix to the symptoms, not so much the underlying problem – not dissimilar to much of modern medicine that merely masks the symptoms, instead of curing the underlying illness.

The core reason our debt is on a death march into innumerable trillions is painfully simple – it benefits those in power to borrow without too much concern for the future, especially when the dangers of doing so are seemingly distant and vague.

After all, increasing debt is easy and alluring – governments borrow ever more money, a portion of which is often used to fatten its, and its apparatchik’s, pockets, while the ballooning interest payments are conveniently pushed onto the shoulders of future administrations, by which time the largely geriatric ruling class will blissfully be six feet under.

The problem is, traditional methods of reducing debt-to-GDP ratios are fraught with challenges. Austerity measures, which involve cutting government spending and reducing public services, are politically unpopular and can stifle economic growth. Increasing taxes to raise revenue often meets resistance from both businesses and citizens, and can lead to capital flight. Inflation, another tool traditionally used to reduce the real value of debt, can erode public trust and savings, leading to social unrest.

Sure, there might still be other traditional ways to navigate these murky waters and to eke out a budget surplus – though I’d argue this is an uphill battle that we’re unlikely to win. So how do we solve this seemingly intractable issue?

Let’s analyse this from first principles: How do you reduce debt? In simple terms, the way to do this is to make more money than is spent and ensure it is invested in assets that appreciate in value.

Let’s look at some ways, including two novel, tech-forward solutions, that I think might just do the trick:

1.Spend prudently, eliminate wastage:

The government should work harder to attract both local and foreign investment, and make it easier to set up and do business here. The current government, to its credit, shows promise in this area. Importantly, the civil service should assist, not hamper, business growth; and the government should actively engage business groups in moving the economy forward.

The money that is made needs to be prudently spent, which means government expenditure – both operational and developmental – must be well planned and effectively implemented. One way to do this is to strictly ensure government projects are carried out by competent people, not party or family cronies.

Also, the massive monetary leakages, as shown by the annual reports of the auditor-general, need to be effectively plugged. Billions of ringgit can be saved if this is done. In addition, corruption at project approval and contract levels needs to be drastically reduced, if not ended – again saving billions of ringgit.

2. Make Malaysia a regional tech powerhouse

A key aspect of debt management is ensuring that the economy grows at a pace that allows the debt-to-GDP ratio to decline. Economic diversification is essential in this regard, as it reduces reliance on any single sector and creates a more resilient economy.

Malaysia’s economy has traditionally been reliant on commodities like oil and palm oil, which are slowly but surely going out of favour. Diversifying into other sectors, especially much more lucrative, tech-forward ones such as semiconductor manufacturing and AI could provide the explosive revenue streams we so badly need.

To this end, Malaysia’s recent push towards becoming a regional semiconductor giant and an AI hub by attracting investments from Silicon Valley giants Nvidia and Microsoft are laudable and a step in the right direction.

Hardware tech revenues are sizable and sticky. A major case in point is Taiwan. With its multi-decade investment in silicon manufacturing infrastructure, it’s built a near-unassailable lead when it comes to semiconductor technology and expertise.

This is what we need for Malaysia. The US-China tensions that threaten Taiwan’s semiconductor dominance might just work in Malaysia’s favour. By proving that we’re a credibly neutral alternative, we stand to gain the monetary and intellectual capital that is looking for a non-geopolitically strained safe haven location to diversify into.

3. Adopt Bitcoin as a reserve asset

If capitalising on high tech trends is how Malaysia becomes a cash cow, saving the proceeds in an inflation-resistant asset is how it protects it.

In this regard, one of the more innovative strategies for Malaysia could be the adoption of bitcoin as a reserve asset. As global debt levels rise and traditional fiat currencies face inflationary pressures, Bitcoin presents an alternative that could help Malaysia hedge against currency devaluation and diversify its reserves.

Bitcoin, with its fixed supply of 21 million coins, is often touted as 

digital gold.

 Unlike fiat currencies, which can be printed in unlimited quantities, bitcoin’s scarcity could make it a valuable asset in times of economic uncertainty. By allocating a portion of its reserves to bitcoin, Malaysia could benefit from the potential appreciation of this digital asset, thus strengthening its overall reserve position.

Furthermore, the adoption of bitcoin could signal Malaysia’s forward-thinking approach to financial innovation, potentially attracting tech-savvy investors and positioning the country as a leader in the digital economy. Countries like El Salvador have already made moves in this direction, and while Malaysia’s economy is much larger and more complex, a cautious and well-regulated adoption of Bitcoin could provide significant benefits.

However, it’s important to note that adopting bitcoin as a reserve asset comes with its risks, given its volatility. Therefore, any decision to include bitcoin in Malaysia’s reserves should be part of a broader, well-considered strategy that includes comprehensive risk management.

Conclusion

Malaysia’s RM1.5 trillion debt is indeed a ticking time bomb, but it is not without solutions. Through a combination of fiscal consolidation and reform, becoming a tech powerhouse and the strategic adoption of Bitcoin as a reserve asset, Malaysia can effectively manage its debt crisis and safeguard its economic future. - FMT

The writer can be contacted at kathirgugan@protonmail.com.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.