It’s election season in Malaysia and it looks like this year’s political hot potato will be the national debt. National debt stands at 684 billion ringgit (US$174.31 billion), putting the country’s debt-to-gross domestic product ratio at 51 per cent. Most countries in the region have a ratio of around 41 per cent.

Prime Minister Najib Razak claimed last week that if the opposition came to power on promises to abolish the goods and services tax, the national debt could reach 1.1 trillion ringgit, adding fuel to the debate over whether the country’s fiscal strength is getting worse, not better.

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Lim Teck Ghee, the CEO of the Centre for Policy Initiatives, a Malaysian think tank, said recently that the debt could reach 1 trillion in as little as three years.

“In fact, if the debt under Barisan Nasional continues to grow at the same rate as it has during the past decade, it will reach more than 1 trillion by 2021; 2 trillion by 2028 and 3 trillion by 2032, according to reliable estimates,” he said.

The ringgit’s volatility adds to the seriousness of the impending crisis. The current exchange rate is roughly US$1 to 3.9 ringgit, a sign of strengthening from 18 months ago when the rate was US$1 to 4.8 ringgit but still far from the US$1 to 2.5 ringgit rate before the 1997 Asian financial crisis.

Despite a 5.9 per cent increase in GDP growth last year, the highest in three years, Malaysians are still struggling with incomes. Nearly all active members of the Employees Provident Fund, 96 per cent, earned less than 6,000 ringgit a month. More than half, 62 per cent, earned less than 2,000 ringgit a month, or less than US$510.

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The Malaysian opposition coalition Pakatan Harapan, or Alliance of Hope, which is led by Mahathir Mohamad, has highlighted the seriousness of the national debt. The campaign director of the opposition People’s Justice Party, Nurul Izzah, called the debt a major issue.

The opaque nature of the Malaysian state, and the growing involvement of government-linked companies that have struggled in the private sector, have complicated the crisis.

“Some have estimated, that due to the lack of transparency, the estimated government debt could already be as high as 1.26 trillion ringgit,” said Rais Hussin, a senior official with Mahathir’s Bersatu party.

Quoting federal figures, Ong Kian Ming, an opposition member of parliament with the Democratic Action Party, added: “The share of the budget to pay for debt service charges has increased from 9.1 per cent in 2009 to 13.2 per cent in 2018.”

All this adds to concerns that Malaysia will be unable to repay its debt to China created by projects under the “Belt and Road Initiative”, Beijing’s plan to develop global trade. Malaysia was one of the first countries to support the initiative with major projects such as the Malaysia-China Kuantan Industrial Park in the state of Pahang; Melaka Gateway on the west coast; the East Coast Rail Link and the Xiamen University Malaysia.

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The railway enjoys a zero-interest moratorium of seven years on the 55 billion ringgit loan it received to complete the project, which was dubbed a “game changer” by Najib. However, there are already doubts the single-track railway will generate the revenue that was expected because of the limited amount of cargo it can transport compared with double-track rails.

Meanwhile, the Melaka Gateway development project, which cost 43 billion ringgit, is not even halfway towards completion despite its deadline having come and gone. The project, on a sprawling 609 acres of reclaimed land, was expected to create revenue through residential complexes, ports and entertainment outlets.

There might be a faint silver lining to all this debt. Anuskha Shah, a vice-president with the ratings agency Moody’s, said this month that although Malaysia had a high debt-to-GDP ratio, the fact that most of its debt was in ringgit would ease the burden.

“To a certain extent, Malaysia does have a fundamental credit constraint but since 97 per cent of its debt is in local currency, this has become a mitigation factor to a potential credit or a currency shock,” she said at an Asean conference.

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That caveat aside, Malaysia seriously must find a way out of this debt trap. By promising to abolish the 6 per cent goods and services tax in Malaysia, the opposition has fired the first salvo to return the buying power back into the hands of the daily consumers. But this policy measure risks foregoing 53 billion ringgit a year in tax revenue.

Unfazed, Mahathir, a former prime minister, thundered in a rally a few days ago that if the government he led between 1981 and 2003 can make do without the tax, the same template can be deployed in transforming Malaysia. As the election looms, for the first time in decades, national debt has become a top topic of contention.