On 20 October I accompanied a delegation of Socialist Party of Malaysia (PSM) members to Parliament to lobby for a higher allocation for the Ministry of Health (MoH) in Budget 2027.
We met eight MPs from several parties. After discussions of varying lengths, we handed them our memorandum.
The Budget is being debated. We asked the MPs to highlight certain points in our memorandum during the debate.
A real-terms cut
Our main point was that the RM47.7bn allocation in the Budget is a step backwards.
It is RM1.2bn more than the 2026 allocation of RM46.5bn. In terms of purchasing power, however, it is likely to be less than the 2026 MoH budget.
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If medical costs are expected to rise by at least 6% in 2026, then to keep the same purchasing power, the 2027 budget should be at least RM49.3bn (46.5 x 1.06).
Some of the MPs agreed that public health facilities are grossly overloaded and understaffed.
A couple of them, however, pointed to the fiscal deficit. They said it is already close to RM80bn, or 3.3% of gross domestic product (GDP), and the government has to float bonds to cover it.
This will push federal government debt to roughly RM1.5tn in 2027. At about 4.5% interest a year, interest on that debt will cost an estimated RM67bn.
Where do we get the extra money, they asked, if we take on more debt for the higher allocation we propose?
Debt monetisation
We referred them to the last section of our memorandum, which suggests ‘debt monetisation’. This means selling bonds to the central bank, Bank Negara.
PSM proposes that the government sell RM24bn of bonds to Bank Negara at an interest rate of 0.1%. This would be on top of the roughly RM80bn of bonds it plans to sell to private investors in 2027 at about 4.5%.
Half of the new money, RM12bn, should go to the MoH budget. The other RM12bn should launch the old age pension scheme, PSM’s other pet project.
This would allow the government to make much-needed improvements to public health services. It would also allow it to start a scheme to reduce old-age poverty and let older people live with dignity.
Because the interest rate is so low, the RM24bn debt to Bank Negara would add little to our debt servicing payments.
Fear of market ‘spirits’
Many conventional economists dislike debt monetisation. That is probably because they may not have thought it through properly.
Their worry that it could weaken the ringgit is not wrong. More spending on public healthcare means buying more medical equipment, much of it imported. Higher imports increase the amount of ringgit in international financial markets.
The value of the ringgit against other currencies ultimately depends on the balance of supply and demand there.
So there will be some downward pressure on the ringgit.
Higher spending by older people will also add to the import bill, because almost every consumer product has an import component.
If older people eat more chicken because of a small monthly pension, for example, that will raise imports, as chicken feed is largely imported. If they buy more electrical goods for the home, that would add a little more to the import bill.
More imports mean more ringgit abroad, which tends to weaken the currency.
But we need to put this in perspective. Even if the import bill rose by about RM14.4bn (60% of RM24bn), that is only 1.2% of total imports of RM1,158bn in the first eight months of 2026. We also had a healthy merchandise trade surplus of RM198.7bn (exports minus imports, January to August).
On these figures, we believe the RM24bn from the bond issue would have a limited impact on the ringgit’s value.
Still, if the government wants to be extra careful, we suggest a permit to buy cars of 1,500cc and above. It would apply to locally produced and fully imported cars alike.
Higher costs would cut car sales a little, and so cut imports. About 50% of the production cost of locally assembled cars comes from parts imported from China and Japan. For fully imported cars, the import content is 100%.
The fall in imports would more than offset the rise from the RM24bn spent on programmes to benefit ordinary people in Malaysia.
(We would also propose using revenue from the permits to develop local production of electric buses and strengthen public transport.)
Debt monetisation is not a new idea. PSM discussed it at a two-day conference on ways to raise government revenue in June 2023. It was included in the memorandum delivered to the Ministry of Finance and to Prime Minister Anwar Ibrahim personally in September 2023.
Several other countries have used similar methods in different circumstances and forms, including during crises or under exceptional monetary arrangements.
Some economists at international institutions such as the World Bank are likely to discourage the idea. Economic planners in Malaysia should have the self-confidence to ask them to say exactly why debt monetisation is a bad idea, and to discuss the downsides they identify in detail.
We need to be scientific and rational about issues like this, rather than harbouring vague, unspecified fears that a method will somehow torpedo the economy.
We owe it to the people to manage the economy well, so that they enjoy the benefits of a growing economy.
Used wisely to strengthen the social safety net, carefully designed and legally supported debt monetisation can do a lot of good for the people. We hope the government will handle this proposal openly and rationally.
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