The impact of public debt and budget deficit towards Malaysian economic performance / Ahmad Syakir Ammar Ahmad O'llia

Malaysia has recorded a fiscal deficit position since its independence in 1957 except for the year 1993 and 1997. As at the end of year 2014, total federal debt was recorded at RM 582,828.00. This position has already been reached and is slightly higher than the prudent cut-off point of public debt-holding that has been set for developed economies. In addition, the importance of analysis on Malaysia has been highlighted before it is too late. Meanwhile, it is also to prevent danger of a government running excessive deficits that might turn our economy unstable. Thus, this study aims to address the above issues to identify the relationship between domestic debt, external debt and budget deficit on Malaysian economic over a period of 1996 to 2016. Ordinary Least Square method and Johansen Co-integration test are used in this study. The OLS result shows that there is a positive significant relationship between public debt and economic performance. Besides that, budget deficit has positive insignificant relationship with economic performance. However, in the long-run equilibrium, public debt have positive significant relationship with economic performance but negative insignificant relationship for budget deficit towards economic performance. The empirical findings suggest that government should issue more securities to stimulate economic performance since public debt especially domestic debt brings positive impact and also spend the money wisely to overcome budget deficit problem.