CHAPTER 8

PUBLIC DEBTS IN MALAYSIA

Lecture Outline
Definition of public debts Introduction to public debts Legal provision Objectives of public debts Types of public debts

DEFINITION
Encyclopaedia Batannicoa
Obligation of Government, particularly those evidence by securities, to pay sums to the holders at some future date. Governments borrowings from the public

INTRODUCTION
Public debts is the total outstanding loans raised by the government Loan plays very important role in the Malaysian economy

LEGAL PROVISIONS
Article 111 FC
The Federation shall not borrow except under the authority of federal law. A State shall not borrow except under the authority of State law, and State law shall not authorize a State to borrow except from the Federation or, for a period not exceeding five years From a bank or other financial source approved for that purpose by the Federal Government, and subject to such conditions as may be specified by the Federal Government. A State shall not give any guarantee except under the authority of State law, and such guarantee shall not be given except with the approval of the Federal Government and subject to such conditions as may be specified by it.

LEGAL PROVISIONS
Local loans Loan (Internal Bank) Ordinance 1958 Loan (Local) ordinance 1959 Treasury Bills (Local) Act 1964 Government Investment Act 1983

Foreign Loans
External Loans Act 1963 Extended Credit Act 1966 Development Funds Act 1966 Loan (Asean Development Bank) Act 1977 Loan (Islamic Development Bank) Act 1977

Objectives of Public Debts

To fill up the gap between anticipated public expenditure and public revenue To seize away excessive purchasing power from the public during an inflationary period To overcome depression by spending more through the creation of public debts To finance developmental plans To meet war finance

Objectives of Public Debts

To raise the living standard of the population To ensure continued growth of the economy Continuous budget deficits of the government

Types of Public Debts

External borrowings
Market loans
Syndicated loans Bond issues Floating rate

Project loans Suppliers credit Drawings from IMF

Types of Public Debts

Domestic Borrowing
Malaysian Government Securities (MGS) Treasury Bills (TB) Government Investment Issues Borrowing from Federal Govt