PF - T4

 

Question 4

a. Define the followings:

i. budget deficit

 

A budget deficit occurs when expenses exceed revenue, and it can indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.

 

Ex: Minister of Finance, Tengku Zafrul said the government's revenue projections were not enough for 2022 to fund all the programmes that were announced, especially for large projects. Hence, the government will have a 6.0 per cent deficit based on a GDP growth of between 5.5 per cent and 6.5 per cent next year. This 6.0 per cent is about RM100 billion deficit that we have to pay through debt

ii. budget surplus

 

A budget surplus occurs when income exceeds expenditures. The term often refers to a government's financial state, as individuals have "savings" rather than a "budget surplus." A surplus is an indication that a government's finances are being effectively managed.

 

Ex: according to Bank Negara Malaysia (BNM), in the midst of the Asian Financial Crises of 1997, the Government's fiscal budget remained in surplus at 2.9% of GNP in the first half of 1997, while the national savings rate was maintained at 38.5% at end-1996

 

iii. Burden of the debt

 

A debt burden is a large amount of money that one country or organization owes to another and which they find very difficult to repay.

 

• Debt indicators; including maturity profiles, reimbursement schedules, 

sensitivity to interest rates, and debt’s composition in foreign currency. 

Ratios of external debt or exports to GDP are useful indicators to  define debt’s evolution and reimbursement capability.

 

Ex:As reported by The Edge Market, in 2018, Malaysia was spiralling debt burden. Due to excess spending, the Malaysian government's debt has grown an average 10% a year over the past 10 years to reach RM687. 43 billion as at end-September 2017, from RM266. 72 billion in 2007

 

iv. External debt

 

External debt is the portion of a country's debt that is borrowed from foreign lenders, including commercial banks, governments, or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made. To earn the needed currency, the borrowing country may sell and export goods to the lending country.

 External debt can be obtained from foreign commercial banks, international financial institutions like IMF, World Bank, ADB etc and from the government of foreign nations.

 

  • Ex: Malaysia External Debt reached 256.4 USD billion in Dec 2021, compared with 252.4 USD billion in the previous quarter.
  • According to Bank Negara Malaysia (BNM), the bulk of the external debt is by corporations and banks. Foreign currency-denominated external debt stood at 46.0% of GDP of which about three quarters are subject to BNM’s prudential requirements and approval framework, compared to the highest level of 60.0% of GDP during the 1997 Asian Financial Crisis.

 

 

 

 

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