Malaysia's debt is at a manageable level, the government says.
Yet there are concerns among its critics over how much interest is being paid to service that debt and whether borrowing by state firms hides a growing problem.
Last month, Prime Minister Najib Razak said total government borrowings of RM685.1 billion (S$231 billion) last year compared favourably against other countries, because they formed only 50.9 per cent of Malaysia's economy, or gross domestic product (GDP).
"Malaysia is better than developed countries such as Singapore at 112 per cent, United Kingdom at 89.3 per cent, Canada at 92.3 per cent," the Premier said.
However, Singapore spent far less servicing that debt, using only 6.1 per cent of its revenue in 2016. Malaysia used 12.5 per cent of its income on interest payments that year. When Datuk Seri Najib took over the country's leadership in 2009, the government's interest burden was less than 9 per cent of its revenue. That figure has been rising steadily since.
This year, the state expects to pay RM31 billion in interest, more than double the amount paid in 2009.
This amounts to nearly all the personal income tax the government expects to collect, or more than two-thirds of its takings from the unpopular goods and services tax it began levying in 2015.
"If this trend (of growing interest payments) continues, it is much more likely that we will have a Budget crisis by 2023," opposition lawmaker and economist Ong Kian Ming told The Straits Times.
Mr Najib's administration had planned to eliminate the country's narrowing budget deficit by 2020, but has now deferred the target date to 2023, ostensibly due to low oil prices.
"Malaysia is better than developed countries such as Singapore at 112 per cent, United Kingdom at 89.3 per cent, Canada at 92.3 per cent" of GDP, Prime Minister Najib Razak said. However, Singapore spent far less servicing that debt, using only 6.1 per cent of its revenue. Malaysia used 12.8 per cent of income on interest payments last year.
Rating agencies have flagged interest payments and low government revenue as a challenge for Malaysia, which is single-A rated. Countries like Singapore are triple-A rated, which means they can borrow at cheaper rates.
"Weak debt affordability, which we measure as the ratio of interest payments to revenues, has been a credit challenge for Malaysia," Moody's analyst Anushka Shah told The Straits Times.
She noted that Kuala Lumpur's revenue-to-GDP ratio of less than 17 per cent is among the lowest of A-rated sovereigns. "Absent any improvements in revenue collections, debt affordability is likely to remain a drag on Malaysia's overall fiscal metrics," she said.
Another concern is undisclosed government payments to help state firms that would otherwise be insolvent. These companies are not included in the Budget statements, or are "off the books".
The Finance Ministry does not record these payments as debt service, but under obscure items such as "strategic sector payments" and "other repayments". These two items will amount to RM8 billion this year, or 3.3 per cent of revenue.
According to disclosures made to Parliament, RM4 billion is for "PFI repayment". Since 2006, the government leased land worth RM30 billion in stages to Pembinaan PFI for a nominal sum, so it can obtain loans to fund projects such as the building of schools and hospitals.
The government then injects money back into PFI so that it can repay its debt.
Another example is the National Higher Education Fund Corporation, tasked with helping Malaysians finance tertiary education. It receives government grants worth nearly RM2 billion annually.
National public transport firm Prasarana has also been recording annual losses, which spiked to RM2.1 billion in 2016, in part due to RM644 million in financing costs.
The government has injected fresh capital from time to time, including RM2.2 billion in 2013, but a total outlay of RM7.3 billion is surpassed by accumulated losses of RM8.3 billion.
"Taking on debt for productive uses is generally desirable. However, much of the recent debt is not being used productively," renowned economist Jomo Kwame Sundaram said. "What Malaysia needs is more development expenditure, not operating expenditure, where the country invests in needed infrastructure and human resources development."
Critics are concerned about transparency. It is unclear how many other state firms are being assisted with their debt payments in this way, and for what purpose.
The Finance Ministry revealed in 2015 it will spend between RM4.76 billion and RM11.62 billion annually to fund "off balance sheet" companies. These outfits have collectively borrowed RM227 billion, which is guaranteed by the government.
If the government's guarantees and contingent liabilities are added to its total debt, its debt-to-GDP ratio will rise to 69 per cent.
Meanwhile, if the government were to foot even RM4 billion in interest payments for these firms, its debt service bill would rise to 14.7 per cent of its revenue, from the 13 per cent expected this year.
Second Finance Minister Johari Abdul Ghani insisted last month the government has "enough space to pay all this debt. We have ample time to pay it and we need to invest for the future".