Thursday, June 10, 2010

A Matter of Definition

When this report first came out yesterday afternoon, I thought it was a typo. But it turned up on the front page of the NST today in big bold letters, so someone has a very different idea of what “national debt” means than I do (excerpt, emphasis added):

Debt under control

KUALA LUMPUR: Malaysia’s debt is under control and steps are being taken to reduce it to prevent the country from suffering the same fate as Greece and Iceland.

Prime Minister Datuk Seri Najib Razak said last year, the country’s debt fell almost one per cent to RM233.92 billion from RM236.18 billion in 2008. This is because of the repayment of some loans and the stronger ringgit against the US dollar.

The budget deficit is also expected to drop and is under control in the medium and long term.

“These measures will ensure that the federal government’s deficit does not rise to the extent that we will be unable to settle our debt,” he told the Dewan Rakyat yesterday.

The government will reduce its external debt by tapping domestic loans because local investors are flush with money and the cost of borrowing is also cheaper. Malaysia also has a comprehensive system that detects financial risks and weaknesses early.

Here’s the coverage from The Star, in case NST changes the link.

I’ve always taken “national debt” to mean the total outstanding borrowing of the national government, which are the collective liability of all the country’s citizens. It appears in Malaysia’s case, “national debt” is something completely different – it’s the aggregate external debt of the country, comprising government, semi-government and private sector (source: 4Q 2009 Treasury quarterly economic report, pg 14-16).

The trouble is partly the way the news was reported (it appears to conflate “national debt” with government debt), and partly from the PM’s further comments on the subject – if you check the actual breakdown, direct external government debt is just RM13.8b, or 5.9% of the total. The bulk of this “national debt” comprises RM71.6b from Non-Financial Public Enterprises (NFPEs), RM70.0b from the private sector, and RM69.0b from the banking system. Of these amounts, only the NFPEs (e.g Petronas) could be said to fall under direct government influence. So talking about consolidating the federal government deficit is more than a little disingenuous, because it has almost no bearing over reducing the “national debt” as it is curiously defined here.

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