Thursday, September 3, 2009

National Debt Update

I haven't covered this topic in a while, so with the government's borrowing program now in full swing, an update is timely.

The federal government's fiscal balance has been negative now since 2Q 2007 (RM millions):

Because expenditure has largely kept track with revenue, the deficit has largely been due to an increase in net development expenditure. The trends are even clearer on a seasonally adjusted basis (RM millions):

An obvious culprit is petrol subsidies, which the latest statements by the Minister of Domestic Trade and Consumer Affairs suggest is running at RM304 million a month for the newly introduced RON95 fuel alone - I'd guess that total petrol subsidies would be in the region of RM400+ million when all is said and done, but that doesn't include the subsidies for diesel, or the hidden subsidy for natural gas which is paid for by Petronas. Total annual cost at current crude oil price levels will therefore be over RM5 billion, or rather more than the country is paying for national healthcare - talk about misplaced priorities.

But development expenditure has accelerated far beyond those levels, which we can probably partly attribute to the two stimulus packages, as well as the planned deficit spending already incorporated in this year's budget. Government borrowing really ratcheted up in February this year, but that was mostly due to the need to meet maturing MGS and GII issues. On a net basis, borrowing didn't really accelerate until May, when a net RM13.8 billion was tapped from the local market:

Up to the end of 2Q 2009, the national debt stood at RM335.7 billion, the bulk of which (RM 228 billion) comprised MGS:

A further RM18 billion was tapped in July and August (gross: I'm not sure how to check on redemptions for August), which brings the grand total to RM353 billion. I'm expecting the rate of borrowing to continue at this pace for most of the rest of the year, and we should see the total to stand at around RM375-380 billion by the new year.

The fiscal deficit has of course continued to deteriorate (4-quarter moving average; ratio to nominal GDP): has the Debt to GDP ratio (4-quarter moving average; ratio to nominal GDP):

The end result is also a significant increase in debt per capita (nominal RM, projected line based on RM380 billion):

My original estimate was that we would see debt per capita reaching RM13,500 inclusive of the two stimulus packages - based on the current rate of borrowing, we're going to see that by the end of this year.

Technical Notes:
1. Federal Government finance and public borrowing data from BNM's MSB
2. August public borrowing data from FAST

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