ISSN: 2222-6990
Open access
Malaysia has been experiencing large budget deficits financed by increasing debts throughout the years especially after the Asian Financial Crisis. Many studies have highlighted that the persistent increases in the budget deficit and large debt are the paramount issues that might drag the economy in the country. This study is therefore attempting to gauge the impact of the budget deficit and public debt on Malaysia’s economic performance. Johansen cointegration method is utilized in this study as longer period of observation is used. The quarterly data spanning from 1998 to 2016 is tested using this method. Finding reveals that budget deficit has negative impact on the economic performance however it has insignificant influence in the long run equilibrium. While the public debt is divided into two components namely domestic debt and external debt. Both debts are found to have positive and significant impact on economic performance in the long run equilibrium approach. This implies that against previous researches, public debt either domestic or external debt can spur the economic performance for the country through the expenditure that lead to the economic development in the long run equilibrium.
BNM. (2017) Central Bank of Malaysia Report. Federal Government Finance Malaysia
Cheong, K. W., Eddie, Y. M., Lye, K. H., Tan, K. E., & Tee, W. S. (2011). Debt, Budget Deficit and Economic Growth of Malaysia. Unpublished Dissertation, Faculty of Business and Finance Department of Economics. Universiti Tunku Abdul Rahman.
Coupet, E. J. (2017). Government Debt and Economic Growth. Journal of Applied Economic and Business Research, 7(3), 172-193
Edame, G. E., & Okoi, O. B. (2015). Fiscal Deficit and Economic Growth in Nigeria: A Chow Test Approach. International Journal of Economics and Financial Issues, 5(3), 748-752.
Fatima, G. M., Ahmed & Rehman, W. (2012). Consequential effects of budget deficit on economic growth of Pakistan. International Journal of Business and Social Sciences, 3(7) 203-208.
Hassan, M. H., & Akhter, T. (2012). Impact of Public Debt Burden on Economic Growth: Evidence from Bangladesh. Journal of Finance and Banking, 10(1), 1-13.
Ijirshar, V. U., Joseph, F., & Godoo, M. (2016). The Relationship between External Debt and Economic Growth in Nigeria. International Journal of Economics & Management Sciences, 6, 390- 398.
Luintel, K. B., & Khan, M. (1999). A Quantitative Reassessment of the Finance Growth Nexus, Evidence from the Multivariate VAR. Journal of Development Economic, 60, 381-405
Metwally, M. M., & Tamaschke, R. (1994). The Interaction Among Foreign Debt, Capital Flows and Growth: Case Studies. Journal of Policy Modelling, 16(6), 597-608.
Modgliani, F. (1961). Long Run Implications of Alternative Fiscal Policies and the Burden of the National Debt. The Economic Journal, 71(284), 730-755.
Danial, M. A. B., Ruhaini, M., Badariah, S. N., Roshyani, A. (2017). Real Effects of Government Debt on sustainable Economic Growth in Malaysia (2017). Journal of International Studies, 10(3), 161-172
Najid, A. (2013). The role of Budget Deficit in the Economic Growth of Pakistan. Global Journal of Management and Business Research Economics and Commerce,13(5).
Hayati, N. A. R. (2012). How federal government’s debt affect the level of economic growth? International Journal of Trade, Economics and Finance, 3(4), 323- 326
Ochieng, O. O. (2013). Relationship between public debt and economic growth in Kenya: 1992-2012. Unpublished MBA Project, University of Nairobi.
Siew, P. L., & Yan, L. N. (2015). Public Debt and Economic Growth in Malaysia. Asian Economic and Financial Review, 5(1), 119-126.
Nurazira, S. M. D. (2016). The Real Effect of Government Debt: Evidence from the Malaysian Economy. Journal of Economic Cooperation and Development, 37(3), 57-86
Vo, T. T. V., Nguyen, T. T. H., Phan, G. Q., Le, T. H. A., & Do, T. L. (2020). The Relationship between Public Debt, Budget Deficit and Sustainable Economic Development in Developing Countries: The Role of Corruption Control. Jurnal Ekonomi & Studi Pembangunan, 21(1) 84-101
In-Text Citation: (Ahmad et al., 2021)
To Cite this Article: Ahmad, Z., O’llia, A. S. A. A., & Mahmood, R. (2021). Public Debt and Budget Deficit: Gauging the Impact on Malaysia’s Economic Performance. International Journal of Academic Research in Business and Social Sciences, 11(18), 151–159.
Copyright: © 2021 The Author(s)
Published by HRMARS (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode