# Malaysia's Federal Debt: What the Fiscal Responsibility Act Actually Caps

> The Public Finance and Fiscal Responsibility Act 2023 (Act 850) sets a medium-term debt target of 60% of GDP, separate from the 65% statutory ceiling that governs specific borrowing instruments. This article explains what is capped, current debt levels, and how it is enforced.

- Category: economy
- Language: en
- Status: published
- Updated: 2026-08-14
- Canonical: https://negaraku.md/en/economy/national-debt-fiscal-responsibility

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Malaysia's Federal Government debt broke through RM1.3 trillion in 2025 — yet the frequently cited "64.7% of GDP" figure and the often-mentioned "60% limit" actually measure two different things. Understanding this distinction is key to reading the country's fiscal health accurately.

## What does Act 850 actually cap?

The Public Finance and Fiscal Responsibility Act 2023 (Act 850) was passed by the Dewan Rakyat in October 2023 as a major post-pandemic fiscal reform. The Act sets four **fiscal objectives** with **quantified values** in its First Schedule, which must be achieved over the "medium term" — defined by the Act as a period of **three to five years**.

| Fiscal objective (First Schedule, Act 850) | Quantified value |
| --- | --- |
| Annual development expenditure | at least 3% of GDP |
| Fiscal balance (deficit) | not exceeding 3% of GDP |
| Debt level | not exceeding 60% of GDP |
| Financial guarantees | not exceeding 25% of GDP |

The key phrase here is "medium term". **Section 8** of the Act sets the fiscal objectives, measured by the quantified values in the First Schedule — including the 60% of GDP debt level; **section 18** ("Debt management policy") then provides that the Government's total debt must not exceed the percentage of GDP specified in that First Schedule. However, this is a **target to be achieved gradually** over the medium term, not a hard cap that blocks borrowing immediately. The definition of debt under the Act covers borrowings raised under the acts in the Second Schedule, namely domestic and external loans.

## Why can debt reach 64% if the limit is 60%?

This is where the most common confusion arises. Act 850's 60% target is **not** the statutory ceiling that governs how much the Government can borrow today. The actual statutory limit is **65% of GDP**, and it is set by a set of borrowing laws entirely separate from Act 850.

This 65% ceiling counts only three "statutory debt" instruments — Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII), and Malaysian Islamic Treasury Bills (MITB). According to the Ministry of Finance's Fiscal Outlook 2026 (Figure 1), this 65% ceiling for MGS, MGII and MITB is governed principally by the Loan (Local) Act 1959 and the Government Funding Act 1983, while other instruments are governed by the External Loans Act 1963 (offshore borrowings) and the Treasury Bills (Local) Act 1946 (MTB). This 65% limit was once 60%, but was **raised to 65% in 2021** through an amendment to the Temporary Measures for Government Financing (Coronavirus Disease 2019 (COVID-19)) Act to allow an additional RM110 billion in borrowing (2020–2022) for pandemic stimulus packages.

| Borrowing legislation | Instrument | Statutory limit |
| --- | --- | --- |
| Loan (Local) Act 1959 & Government Funding Act 1983 | MGS, MGII, MITB | not exceeding 65% of GDP |
| External Loans Act 1963 | Offshore borrowings | not exceeding RM35 billion |
| Treasury Bills (Local) Act 1946 | MTB | not exceeding RM10 billion |

*(Source of instrument limits: Fiscal Outlook 2026, Section 4, Figure 1, Ministry of Finance.)*

So there are two valid numbers at the same time: **total debt** (all instruments, the Act 850 measure) stood at 64.7% of GDP as at June 2025, while **statutory debt** (only MGS, MGII, MITB) stood at 63.5% of GDP — still below the 65% ceiling. Total debt exceeds the 60% target because 60% is a goal to be reached by the end of the medium-term period, not a line that cannot be crossed today.

## How big is federal debt now?

Federal Government debt has risen continuously in absolute terms, while its ratio to GDP has remained around 64%.

| Period | Federal debt (RM billion) | % of GDP |
| --- | --- | --- |
| 2023 | 1,172.5 | 64.3 |
| 2024 | 1,247.6 | 64.6 |
| June 2025 | 1,304.2 | 64.7 |

As at June 2025, **98.3% of the debt is in local currency** (ringgit), leaving only 1.7% in offshore borrowings, which limits exposure to foreign exchange rate risk. Shariah-compliant instruments make up 48.6% of the portfolio, or RM634.3 billion.

In terms of cost, debt service charges (DSC) consumed **RM50.5 billion in 2024, equivalent to 15.6% of Government revenue**, and are projected to rise to **RM54.3 billion or 16.3% of revenue in 2025** according to Fiscal Outlook 2026. The DSC-to-revenue ratio now exceeds 15% — a level often informally referred to as a general indicator of debt cost burden, but not an official statutory threshold. The Government is targeting a reduction in the fiscal deficit from 4.1% of GDP (2024) to 3.8% (2025), heading towards the 3% medium-term target.

## How do development expenditure and contingent liabilities factor in?

Act 850 does not merely cap debt — it also sets a floor for productive investment. The first objective of the First Schedule requires annual development expenditure of **at least 3% of GDP**, ensuring that borrowings are not spent solely on operating expenditure and that a portion flows into infrastructure and development projects.

Contingent liabilities — particularly financial guarantees given to entities such as government-linked companies — are dealt with separately. These are not debt unless they are **realised**, but they remain a fiscal risk. Act 850 limits financial guarantees to **25% of GDP** and requires the Minister to publish an annual fiscal risk statement disclosing the level of guarantees and other exposures.

In terms of governance structure, Act 850 statutorily establishes the **Fiscal Policy Committee** under **section 28**, which may make recommendations to the Cabinet on the Government's fiscal policy. Separately, the **Fiscal Risk, Debt and Liabilities Committee (JRFL)** was established in March 2024 as a subcommittee under **section 31** of the Act — which empowers the Fiscal Policy Committee to establish subcommittees to assess the Government's exposure to fiscal risk, debt and other liabilities (Fiscal Outlook 2026, Section 5, Ministry of Finance). For a broader picture, Malaysia's public sector debt — comprising the government, statutory bodies and public companies — reached RM1,730.5 billion or 85.8% of GDP as at June 2025.

## What happens if the Government does not meet the targets?

Act 850 has no automatic penalties, but it does have a formal **accountability mechanism**. Under section 27, if the fiscal objectives and quantified values are not achieved, the Minister of Finance must table a **fiscal adjustment plan that has to be approved by a motion of the Dewan Rakyat**. The plan must state the reasons for the deviation, the corrective measures to be taken, and the expected period to return to the objectives and quantified values.

The Act also permits temporary deviation in **exceptional circumstances** under section 26 — such as sudden events that could affect life, the economy or the fiscal position — provided that an assessment and a fiscal adjustment plan are tabled before the Cabinet and the Dewan Rakyat. This design prioritises transparency and discipline through public disclosure over a hard mechanical cap, giving the government the flexibility to respond to shocks while remaining accountable to Parliament.

## What's next

To follow developments in the national debt, review the annual **Fiscal Outlook** published by the Ministry of Finance alongside each Budget (usually in October) — it contains the latest debt figures, GDP ratios, and debt sustainability assessments. The annual fiscal risk statement and JRFL reports provide insight into contingent liabilities.

To understand the broader fiscal picture, explore related articles on the [Federal Budget](/en/economy/federal-budget), [an overview of Malaysia's GDP](/en/economy/gdp-overview), [sovereign credit rating](/en/economy/sovereign-credit-rating-malaysia), and [subsidy rationalisation](/en/economy/subsidy-rationalisation-padu), which directly affect the country's fiscal consolidation path.

## Sources

- Public Finance and Fiscal Responsibility Act 2023 (Act 850) — https://www.mof.gov.my/portal/pdf/ekonomi/akta-850-en.pdf (Kementerian Kewangan Malaysia)
- Fiscal Outlook 2026, Section 4: Debt Management — https://belanjawan.mof.gov.my/pdf/belanjawan2026/revenue/section4.pdf (Kementerian Kewangan Malaysia)
- Fiscal Outlook 2026, Section 5: Fiscal Risk and Liabilities — https://belanjawan.mof.gov.my/pdf/belanjawan2026/revenue/section5.pdf (Kementerian Kewangan Malaysia)
- Fiscal Outlook 2025, Section 4: Debt Management — https://belanjawan.mof.gov.my/pdf/belanjawan2025/revenue/section4.pdf (Kementerian Kewangan Malaysia)
- Govt Committed To Reducing Fiscal Deficit, Keep Debt-To-GDP Ratio Below 60 Pct — https://www.mof.gov.my/portal/en/news/press-citations/govt-committed-to-reducing-fiscal-deficit-keep-debt-to-gdp-ratio-below-60-pct (Kementerian Kewangan Malaysia)
- New statutory debt limits to balance financing needs – Yamani Hafez — https://www.mof.gov.my/portal/en/news/press-citations/new-statutory-debt-limits-to-balance-financing-needs-yamani-hafez (Kementerian Kewangan Malaysia)
- MoF: Debt servicing to take up 16.3pc of govt revenue in 2025 amid fiscal tightening — https://www.malaymail.com/news/malaysia/2025/10/10/mof-debt-servicing-to-take-up-163pc-of-govt-revenue-in-2025-amid-fiscal-tightening/194126 (Malay Mail (reporting Fiscal Outlook 2026 / MOF figures))

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