KUALA LUMPUR: Economists had mixed reactions to the rise in national debt and increase in amount of government loans.
While some of them expressed concern for the issue due to its impact on growth, others said there were provisions in place to ensure that funding for infrastructure and other vital sectors remain stable.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said when the government takes loans, it may lead to several scenarious that could lead to an imbalance in demand and supply.
He said if the supply of money in the country grows more than the growth in gross domestic product, it could cause inflation.
"When there is too much money chasing too few products, it can raise prices in general," he told the New Straits Times.
He also touched on another point made by Datuk Seri Anwar Ibrahim on Tuesday, who also explained that new loans were taken to repay the government's maturing debts.
Afzanizam said this was something that would limit what could otherwise be spent for public good.
"This would deprive citizens from enjoying better economic conditions such as better access to education, healthcare services, and basic infrastructure", Afzani said.
On Tuesday, Anwar had said the federal government's debt has increased by RM50 billion to RM1.22 trillion as of the end of April this year, compared to RM1.17 trillion at the end of last year.
Anwar, who is Finance Minister, said the government had taken gross loans amounting to RM70.5 billion in the first four months of this year.
This, he said, included the issuance of Malaysian Government Securities totalling RM30 billion, Government Investment Issues (RM34.5 billion) and Malaysian Treasury Bills (RM6 billion).
Anwar had said this in response to Ahmad Amzad Mohamed (PN-Kuala Terengganu), who asked for the justification for the increase in the government's debt in the first four months of 2024.
Anwar also added that the increase in the federal government's debt each year was also due to the need to borrow to finance the fiscal deficit, which is to fund development expenditure (DE).
Institute for Democracy and Economic Affairs (IDEAS) senior fellow Carmelo Ferlito believe sthat investments made through such debt can have unintended consequences.
"These industries will benefit from artificial help, which will allow them to grow beyond what would have happened otherwise, creating 'fake' employments and bringing additional 'fake' support to other industries.
"This will create a negative domino effect when the support is withdrawn", he said.
Economist Dr Geoffrey Williams said there were laws in place to ensure expenditure for infrastructure remained stable.
"Seventy six per cent of the current debt is domestically held and 24 per cent is external. This domestic debt is held by government-linked investment companies (GLICs), like the Employees Provident Fund (EPF), and so is very stable."
According to Williams, the new Public Finance and Fiscal Responsibility Act and the Medium Term Fiscal Strategy also helps in manage provisions of public services without the need for too many loans.
The act was passed last year to enhance public financial management and ensure resilience of public finances, among other things.
The act forces the government to publish a mid-year financial performance report annually.
Nusantara Strategic Research Academy (NURA) senior fellow and geostrategist, Prof Dr Azmi Hassan said:
"(Anwar) said that the national debt will be under control (due to measures such as the Fiscal Responsibility Act) so many times but it just doesn't gain traction because locally, he needs to talk about 'how to reduce the price of goods', even if reducing the national debt would do that."
He said the national debt is not politically dangerous to the government because how it is a fringe issue in local politics.