General Government Debt Levels Could Reduce Opportunities for Fiscal Stimulus

As of May 2022, general government debt levels for Indonesia, Malaysia, the Philippines, and Thailand jumped following the onset of the pandemic—as did debt in countries around the world—which could hamper these countries’ ability to deliver fiscal stimulus at a time of tightening monetary policy.  The debt levels for these countries, however, remain significantly lower than the average general government debt levels for advanced economies.

  • General government debt, which we define as the sum of a government’s domestic debt and its external general government debt, as a percentage of GDP at end-201 was the greatest in Malaysia, at 63%; followed by the Philippines, at 60%; then Thailand, at 59%; and, lastly, Indonesia, at 40%.  For all but Indonesia, the increase in debt to GDP from 2019-2021 was materially greater than the increase in debt to GDP from 2013-2018.

General Government Debt (Domestic + External General Government) to GDP[1],[2]

  • The percentage change in debt over this period is significantly greater than the percentage change in GDP for these countries.  Indonesia and Malaysia experienced an increase in GDP from end-2019 to end-2021, whereas the Philippines and Thailand saw a decline in GDP over this period.

Change in Debt and GDP from end-2019 to end-2021

Change in Domestic Debt68.5%22.0%59.3%48.6%
Change in Government External Debt1.2%28.0%36.7%1.3%
Change in Total Government Debt31.3%23.6%51.7%41.1%
Change in GDP (in local currency unit)7.2%2.1%-0.5%-4.3%

Economies in Southeast Asia grew in the first quarter of 2022 at rates that generally exceeded expectations, although these countries also flagged several factors that would act as headwinds to future growth, such as inflation, supply chain disruptions, and the war in Ukraine.  As central banks across the globe,[15],[16],[17],[18],[19] including in Southeast Asia, tighten monetary policy these economies may require fiscal stimulus to maintain their momentum. 

  • In mid-May, Indonesia, Malaysia, the Philippines, and Thailand reported first quarter 2022 GDP growth that was stronger or in-line with expectations, expanding 5.01%,[20] 5.0%,[21],[22] 8.3%,[23] and 1.1%,[24]respectively. 
  • Central banks across the globe recently increased their policy rates, and in mid-May Bangko Sentral ng Pilipinas and Bank Negara Malaysia increased their respective policy rates 25 basis points.[25],[26]  Bank Indonesia, which concluded its most recent policy meeting on 24 May, maintained its current policy rate,[27] and the Bank of Thailand, which next meets in June, has signaled it will maintain its current rate position.[28]

It is difficult to determine whether the current debt levels of Southeast Asian economies will dampen future economic growth—studies seeking to identify the level at which debt negatively impacts growth produce inconsistent findings—although, on a relative basis, their level of debt to GDP is significantly less than the global average.  Nonetheless, debt-minded governments may be hesitant to add greater levels of debt at a time when their debt is increasing.  

  • Reinhart and Rogoff in 2010 identified 90% debt to GDP as the level in which debt negatively impacts an economy’s growth rate.[29]  Subsequent research, however, questions the reliability of this finding; Egert in 2013 identifies a negative relationship between public debt and growth when debt exceeds 45-50% of GDP;[30] Pescatori, Sandri, and Simon in 2014 find there is “no simple threshold above which debt ratios severely undermine medium-term growth prospects.”[31]
  • An annex to the Maastricht Treaty, which set the foundation for the European Union, identifies a debt to GDP benchmark of 60% for member countries, although the reference value has “no solid ground in either theory or empirical evidence.”  Instead, the 60% ceiling appears to reflect the average debt to GDP of the negotiating countries at the time of the treaty.[32]
  • At the end of 2020, global public debt reached a record 99% of global GDP, with advanced economies having considerably higher debt to GDP ratios than emerging markets ex-China (approximately 125% and 61%, respectively).[33] The average general government debt levels for the 38 members of the Organisation for Economic Co-operation and Development (OECD) increased to 94% of GDP in 2020, from 80% in 2019.  

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[1] Malacca Research calculations.  General government debt (domestic + external) reflects total domestic debt and external general government debt identified by each country’s central bank. 

[2] These general government debt to GDP values differ from those provided by the IMF in its Global Debt Database for 2020, which is the most recent year available.  The general government debt to GDP values identified in the IMF database for 2020 are the following:  Indonesia, 36.6%; Malaysia, 67.4%; the Philippines, 51.7%; and Thailand, 45.0%.

[3] Bank Indonesia.  “Central Government Debt.”  Last updated 15 February 2022.

[4] Bank Indonesia.  “Outstanding Government Securities (ON & SPN).”  Last updated 15 February 2022.

[5] Bank Indonesia.  “External Debt Position by Group of Borrower.”  

[6] Bank Indonesia.  “PDB Triwulanan atas dasar harga berlaku, tahun 2010-2021.”  

[7] Bank Negara Malaysia.  “Gross External Debt.”

[8] Bank Negara Malaysia.  “Table 1.1: GDP and GNI at Current Prices.”

[9] Bank Negara Malaysia.  “Central Government Debt.”

[10] Bangko Sentral ng Pilipinas.  “External Debt in Million USD.”

[11] Bangko Sentral ng Pilipinas.  “National Government Debt.”

[12] Bank of Thailand.  “EC_PF_002_S2: Government Domestic Debt Outsanding Classified by Holders.”  Last updated 29 April 2022.

[13] Bank of Thailand.  “EC_XT_032_S2 External Debt (US$).”  Last updated 29 April 2022.

[14] World Bank.  “Thailand GDP (current LCU).”

[15] Federal Reserve.  “Press Release – Federal Reserve issues FOMC Statement.”  4 May 2022.

[16] Federal Reserve.  “Press Release – Federal Reserve issues FOMC Statement.”  16 March 2022.

[17] CNBC.  “South Korea’s central bank unexpectedly raises rates as prices surge.”  13 April 2022.

[18] Reserve Bank of Australia.  “Statement by Philip Lowe, Governor: Monetary Policy Decision.”  3 May 2022.

[19] Wall Street Journal.  “India’s Central Bank Raises Interest Rates in Surprise Move.”  4 May 2022.

[20] CNBC.  “Indonesia’s economy maintains steady growth momentum in the first quarter.”  9 May 2022.

[21] Bank Negara Malaysia.  “Economic and Financial Developments in Malaysia in the First Quarter of 2022.”  13 May 2022.

[22] Anisah Shukry and Yantoultra Ngui.  “Quickening Malaysia Growth Supports BNM’s Rate-Hike Move.”  Bloomberg.  13 May 2022.

[23] Bangko Sentral ng Pilipinas.  “Q1 2022 GDP Growth Affirms PH Economic Resilience.”  13 May 2022.

[24] Bangkok Post.  “Q1 GDP growth tops forecast but Ukraine war hits 2022 outlook.”  17 May 2022.

[25] Bangko Sentral ng Pilipinas.  “Monetary Board Raises Policy Rate by 25 Basis Points.”  19 May 2022.

[26] Bank Negara Malaysia.  “Monetary Policy Statement.”  11 May 2022.

[27] Yi Wei Wong.  “Indonesia’s Central Bank Stands Pat on Key Rate.”  MarketWatch.  24 May 2022.

[28] Bangkok Post.  “No need to raise interest rates, says BoT chief.”  20 May 2022.

[29] Carmen Reinhart and Kenneth Rogoff.  “Growth in a Time of Debt.”  American Economic Review.  May 2010.

[30] Balazs Egert.  “The 90% Public Debt Threshold: The Rise and Fall of a Stylised Fact, OECD Economics Department Working Papers No. 1055.”  Organisation for Economic Co-operation and Development.  6 June 2013.

[31] Andrea Pescatori, Damiano Sandri, and John Simon.  “No Magic Threshold.”  International Monetary Fund.  June 2014. 

[32] Marco Buti and Vitor Gaspar.  “Maastricht values.”  VOXEU CEPR.  8 July 2021.

[33] Vitor Gaspar, Paulo Medas, and Roberto Perrelli.  “Global Debt Reaches a Record $226 Trillion.”  International Monetary Fund Blog.  15 December 2021.

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