Govt seeks to contain borrowings, rebuild fiscal buffers

 The focus will be on slowing the pace of borrowings in 2027 to keep rising government debt in check.

Federal government debt rose by RM58.1 billion to RM1.37 trillion as at end-June 2026 from RM1.32 trillion in 2025.

PETALING JAYA:

The government is committed to slowing the pace of its borrowings in 2027 as it seeks to keep the growing federal government debt in check.

The focus next year will be “containing debt accumulation and rebuilding fiscal buffers” with priority given to controlling borrowing costs and mitigating refinancing risks, the ministry of finance (MoF) said.

“This will ensure borrowing remains affordable, risks are well managed and fiscal space is progressively rebuilt, while directing public resources towards productive and high-impact investments,” the MoF said in its 2027 Fiscal Outlook and Federal Government Revenue Estimates report.

Federal government debt rose by RM58.1 billion or 4.4% to RM1.378 trillion as at end-June 2026 from RM1.321 trillion as at end 2025.

However, the ratio of federal debt to gross domestic product fell to 63.1% from 65.2% in 2025, indicating the economy grew faster than the debt. The decline in the ratio brings the government closer to its medium-term target of below 60%.

Net government borrowings are projected to rise to RM78.6 billion by end-2026 from RM75.6 billion last year.

The MoF said the core strategy remains heavily weighted toward ringgit-denominated domestic issuances to shield from exchange rate volatility.

Resident investors held RM1.08 trillion, or 78.5%, of outstanding federal government debt. The Employees Provident Fund remained the largest single holder with 30.5% of total debt, followed by banking institutions at 28.5% and non-resident investors (21.5%).

The ministry’s debt management strategy aims to smooth out the maturity profile and mitigate rollover risks by prioritising medium-to-long tenure issuances amid a volatile global interest rate environment.

As at end-June 2026, 63.9% of outstanding federal government debt had remaining maturities exceeding five years, while the weighted average time to maturity of outstanding debt securities remained unchanged at 9.6 years.

Domestic financing accounted for 98.8% of outstanding federal debt as at end-June 2026 while offshore borrowings made up the rest, limiting the government’s exposure to foreign exchange swings. - FMT