Today (20/10/26) I accompanied a delegation of PSM members to Parliament to lobby for a higher allocation to the Ministry of Health (MoH) in the 2027 budget. We met 8 members of parliament from several parties and passed them our memorandum after discussions (of varying lengths). The 2027 Budget is currently being debated. We asked these MPs to highlight certain the points in our memorandum in the on-going debate.
Diminution of Purchasing Power
Our main point was that the RM 47.704 billion allocation in the 2027 budget is a step backwards. For although it is a RM 1.18 billion increase in monetary terms from the 2026 allocation of RM 46.52 billion, in terms of purchasing power it is actually less than the 2026 MoH budget. Medical costs are expected to increase by at least 6% in the course of 2026. This means the 2027 budget should be at least RM 49.31 billion to maintain parity in purchasing power compared to the 2026 allocation. (46.52 x 1.06)
Some of the MPs agreed with us that the public health facilities are grossly overloaded and under-staffed. But a couple of them pointed out that the fiscal deficit for this year is already RM80.6 billion, or 3.3% of GDP. The government has to float bonds for this amount to cover the deficit. This will increase our federal government debt to RM 1.3 trillion in 2027. At about 4.5% interest per year, this will require an estimated RM 61 billion to service (pay interest). Where do we get the extra money, they asked, if we take on more debt for the increased allocation you are proposing.
Debt Monetization
We referred them to the last section of our memorandum where we suggested the modality of “Debt Monetization”. This refers to the selling of bonds to the National Bank, in Malaysia’s case, to Bank Negara. The PSM is suggesting that, in addition to the RM 80 billion worth of bonds that the government is committed to selling to private investors in 2027 (with an interest rate of about 4.5%), another RM 24 billion worth of bonds should be sold to Bank Negara with the interest rate set a 0.1%. RM 12 billion from this fund should be used to augment the Health Ministry budget, while the remaining RM 12 billion should be used to launch the Old Age Pension scheme (the other pet project of the PSM).
Debt monetization used as above would enable the government to initiate much needed improvements to our public health services, as well as to inaugurate a scheme that will reduce old age poverty and enable our senior citizens to live with dignity. However, this RM 24 billion debt to Bank Negara will not increase our debt servicing payments, as the interest rate has been set very low.
Fear of Market “Spirits”
Debt Monetization is an anathema for many conventional economists. But that is because many of them have not thought through it properly. Their worry that debt monetization can cause devaluation of the ringgit isn’t wrong. Increased expenditure in public health care will lead to an increase in the purchase of medical equipment, much of which will be imported. Increase in imports will increase the amount of ringgit in international financial markets. Ultimately, the determination of the relative value of the ringgit vis-à-vis other currencies is the supply-demand balance of the ringgit in the international financial markets.
So, there will be definitely some downward pressure on the ringgit. In addition, an increase in consumer spending by the elderly will also increase our overall import bill. Because there is an import component in almost every consumer product. For example, if our elderly eat more chicken because of this small monthly pension – that will increase our import bill as chicken feed is largely imported. If they buy some electrical equipment for their home, that too will increase our import bill a bit. Any increase in Malaysia’s imports will boost the amount of ringgit in the international financial markets, and tend to depress the relative value of the ringgit.
But we need to put this in perspective – even if the increase in import bill is about RM 14.4 billion (estimated as 60% of 24 billion), it is still a very small portion (1.3%) of our total imports, which was RM 1,140 billion for the first 8 months of 2026. We had a healthy balance in merchandize trade of RM 220 billion for these 8 months. (ie exports – imports for Jan to Aug was RM 220 billion). Based on these figures, we believe that the increase in imports due to debt monetization of RM 24 billion will have a negligible impact on value of the ringgit.
However, if the government wants to be extra careful, we suggest the introduction of a permit to purchase cars of 1500 cc and above. This should apply for both locally produced cars and fully imported cars. The increased costs of cars would decrease car sales a bit, and thus overall imports – about 50% of the production costs of locally assembled cars comes from parts imported from China and Japan. And of course, the import content of fully imported cars would be 100% of the price of the cars. The resulting decrease in the import bill would more than offset the increase due to the RM 24 billion used for programs to benefit the ordinary Malaysian. (We would further propose that the revenue generated from the car purchase permits be used to develop local production of electric buses to strengthen public transportation.)
This idea of using the modality of debt monetization isn’t new. It was discussed in the PSM 2-day conference on methods to increase government revenue in June 2023. This idea was included in Memorandum delivered to the Ministry of Finance and to PMX personally in September 2023. As a matter of fact, several other countries have used this modality – India, Indonesia, New Zealand and Australia, among others.
However, it is an idea that the Harvard trained economists from the World Bank will discourage. Malaysian economic planners should have the self-confidence to ask them to specify why debt monetization is such a bad idea, and discuss in detail the downsides that these economists identify.
We need to be scientific and rational in our approach to issues like debt monetization instead of having vague, unspecified fears that a particular method will somehow torpedo our economy. We owe it to our people to manage our economy well, so that the people enjoy the benefits of a growing GDP. Debt Monetization, if used judiciously to strengthen the social safety net for our people, can do a whole lot of good for our people. We hope the government will handle this proposal in an open and rational manner.
Jeyakumar Devaraj
Chairperson
Parti Sosialis Malaysia
20/10/26