KUALA LUMPUR: The federal government’s debt servicing charges (DSC) are projected to increase by 7.6% to RM54.3 billion in 2025, accounting for 16.3% of total revenue compared to a 9.0% increase of RM50.5 billion or 15.6% in 2024.
The Ministry of Finance (MoF) said the slower growth of DSC reflects the government’s commitment to narrowing the fiscal deficit from 4.1% in 2024 to 3.8% in 2025.
The bulk of DSC, at approximately RM53.5 billion, is allocated for domestic instruments’ interest and profit payments, while the remaining RM0.8 billion is for servicing offshore borrowings.
“From a cost-efficiency perspective, the weighted average cost of borrowing for outstanding domestic debt stood at 4.11% as at end-June 2025 (end-2024: 4.12%).
“The predominance of fixed-rate coupon structures within government securities continues to insulate the debt portfolio from short-term interest rate fluctuations throughout their remaining tenures,“ the ministry said in its 2026 Fiscal Outlook and Federal Government Revenue Estimates report released today.
Nevertheless, the MoF said the marginal decrease in the weighted average cost of borrowing compared to the previous year has helped contain DSC’s growth.
Federal Government’s gross borrowing to decline to RM184 billion
According to the report, the federal government’s gross borrowings are projected to decline further to RM184 billion or 9.1% of gross domestic product (GDP) in 2025 against RM197.5 billion or 10.2% of GDP last year, sourced entirely from the domestic capital market, in line with fiscal consolidation efforts.
Of this, RM106.8 billion is allocated for principal repayments, while RM76.7 billion will be utilised for deficit financing.
Principal repayments comprise maturing Malaysian Government Securities (MGS) amounting to RM46.5 billion, Malaysian Government Investment Issues (MGII) of RM37 billion and Malaysian Treasury Bills (MTB) totalling RM5 billion.
Additionally, the Malaysian Islamic Treasury Bills (MITB) amount to RM13.5 billion and the offshore redemption is worth RM4.8 billion, including US$1 billion global sukuk.
In 2025, total issuances of MGS and MGII are projected at RM82.5 billion and RM88 billion, accounting for 44.9% and 47.8% of total annual gross borrowings, respectively.
Meanwhile, issuances of MTB and MITB are estimated to decline to RM4.5 billion and RM9 billion or 2.4% and 4.9%, respectively.
According to the report, the MoF said that as of the end of June 2025, the federal government’s debt stood at RM1.304 trillion, equivalent to 64.7% of GDP.
“Of this, 98.3% comprised domestic debt, while offshore borrowings reduced to 1.7% (1H 2024: 2.4%) following the redemption of US$1 billion global sukuk in April 2025,” it said.
Meanwhile, the report noted that Malaysia’s external debt grew by 3.9% to RM1.403 trillion, equivalent to 69.6% of GDP as at end-June 2025 (end-2024: RM1.350 trillion; 69.9% of GDP).
“The increase was driven by stronger non-resident participation in government domestic debt securities as well as higher net issuances of bonds and notes abroad by public corporations,” the MoF said.
In addition, Malaysia’s public sector debt rose by 4.2% to RM1.730 trillion, equivalent to 85.8% of GDP during the same period (end-2024: RM1.660 trillion; 86% of GDP).
The increase was primarily driven by higher federal government borrowings, which accounted for 75.4% of total public sector debt. – Bernama
