Will Malaysia go bankrupt soon ah? We con9firmed with an expert

A month or so ago, Tengku Zafrul, our Finance Minister confidently said that Malaysia won’t go bankrupt anytime soon. Unsurprisingly, many of us at CILISOS reacted like:

I mean, what with the recent increase in grocery prices and rate of inflation (as of June 2022), how could we NOT be worried that Malaysia will pokai, taking us down with the proverbial sinking ship? We ain’t no experts when it comes to matters of finance and economics, especially on a national scale, but we contacted someone who is – Professor Dr. Hafezali, the Head of Research at the Faculty of Business and Law from Taylor’s University to ask whether Malaysia will go pokai in the foreseeable future.

Sure enough, we got what we bargained for (and you will too), but first…

 

How can a country actually become bankrupt?

Before we tell y’all whether Malaysia will gulung tikar soon, how does a country become an economic Titanic, anyway? First off, a country cannot go “bankrupt”, despite popular sentiment. However, a country’s government can borrow so much money that they can’t or won’t pay it back, just like how our editor couldn’t repay his credit card debt back in 2009.

Yeh, when a country spends more than it makes, they usually have to borrow money from foreign banks, other countries or in rare circumstances, individuals. This is known as sovereign debt… which has nothing to do with the Agong or the sultans, despite the terminology.

Now you’re probably wondering what Malaysia would look like if we were to default on our debts. Well, feast on this:

Thaaaat’s right: hyperinflation. The ringgit could be so devalued that it becomes worthless cuz either the price of goods go through the roof or when the government prints hella stacks of money in an attempt to combat the inflation.

And guess what?

The prof also mentioned that people would most likely spend less. Some businesses will be was-was to ambik new loans while others might not be able to repay existing loans, leading to a slowdown in the economy, possibly a banking crisis and widespread unemployment. A financial landscape that makes Mordor look like an amusement park.

Fortunately, it seems like…

 

This won’t happen anytime soon in Malaysia

We can’t really meme on Tengku Zafrul here cuz… he’s right. Apparently, our government is repaying its debts on schedule, as of June 2022, and our Finance Minister stressed that the national debt is “under control”, despite it being at a mind-boggling RM1.045 trillion. This writer can only count up till like ten. What Professor Dr. Hafezali said in our interview seemed to back that up:

“Currently for every ringgit of revenue collected by the government, about 20% is used to service debt.” – Professor Dr. Hafezali, to CILISOS

Plus, according to both the prof and the World Bank, Malaysia’s economy is actually on an upwards track to recovery – it’s projected to grow 5.5% this year. These are *chef’s kiss* good indicators that there’s a very slim chance of our government defaulting on its sovereign debt.

Say you’re curious about the signs of an impending government default, Professor Dr. Hafezali gave us a couple of things to look out for:

• Dipping economic growth and higher unemployment rates
• The country isn’t allocating enough to pay back national debt
• Less foreign investors looking to invest in our country

But even if our country ends up in financial purgatory, the good news is: there are steps that the government can take to stem the tide.

 

What can our gomen do if Malaysia cannot pay back its loans?

In an event of a default, a country could approach the International Monetary Fund (IMF) for a bailout in the form of loans or recovery packages. The IMF acts as sort of a financial advisor and emergency fund for member countries, and whenever the IMF bails a country out, said country would have to follow conditions set by the organization to eventually find stable financial footing. Depending on the situation, conditions might include asking for extensions on loan repayments, lowering national spending, privatizing state-owned companies or removing government subsidies.

If a country isn’t hated by absolutely every other country, its government could also ask allied nations for help, like how Ukraine did earlier this year from the United States. So… yeah. Malaysia’s government seems to have the nation’s finances under control, so y’all don’t have to pawn off your jewelry or gold teeth… yet.

And there we have it. To cap things off, we’d like to give Taylors University and Professor Dr. Hafezali for taking the time to allay our concerns about Malaysia’s financial liquidity. That’s all, folks.