THE Covid-19 pandemic has plagued the country since March 2020. Although a significant number of Malaysians have been vaccinated, the virus continues to spread.
A new variant called "Delta" is not only more contagious, but can also overcome the effects of vaccines.
As a result, nobody dares to predict when this pandemic will end. One problem that is relatively easy to predict is the rise in the public debt burden globally after many governments spend heavily to mitigate the economic impact of Covid-19.
The main strategy is to have huge economic stimulus packages in the form of financial assistance programmes for various groups.
The problem is almost all governments are already under huge debt burdens. As a result many are unable to avoid adding more debt, worsening their situation.
For example, the United States government under Donald Trump spent more than US$6 trillion on stimulus packages. When Joe Biden took over early this year, his spending measures totalled US$1.9 trillion.
As a result the total debt of the American government by mid-2021 is nearly US$29 trillion, with a debt-to-GDP ratio of 127 per cent. A similar situation is facing Britain. Its debt increased from £1.87 trillion in April 2020 to £2.19 trillion in May 2021. This government debt relative to current GDP is almost 100 per cent, the highest since World War 2.
For Malaysia, a report by the Fitch Rating agency stated that government debt-to-GDP ratio in 2020 was 76.9 per cent, up from the 2019 reading of 65.3 per cent. With a total GDP of RM1.342 trillion for 2020, our total public debt was about RM1.03 trillion.
This will increase due to the stimulus packages introduced by the government totalling RM530 billion. In 2020, government debt servicing amounted to about RM30 billion.
This year, debt-servicing payments will most likely be close to RM40 billion. It should be noted that the Goods and Services Tax (GST) collection in 2017 was RM44.03 billion. GST was abolished in 2018 and replaced by the Sales and Services Tax (SST), which generated only RM24.5 billion in 2020.
As the country's economy slowed down as a result of Covid19, government SST collection in 2021 is also projected to continue to decline. We should not be surprised if the government decides to replace SST with GST as it is known to be more effective in increasing tax revenues.
There's also the possibility the government will increase fees for certain services, such as education and health.
Moreover, since new money will be created by the banking industry every time it lends funds to the government and the private sector, the value of money will be reduced in the long run, thereby contributing to an increase in the cost of living, which will hurt everyone, especially low-income earners.
This should motivate us to find an alternative model of economic development that is less dependent on debt.
The spirit of giving and helping others who are less fortunate must be nurtured. In this way, those who are wealthy will contribute to society by channelling surplus wealth to charitable organisations, such as waqf, so that society will be less dependent on the government, thereby reducing the pressure on the latter to borrow funds.
In fact, religious teachings warn us about the dangers of debt and the debt industry, which is known as "riba" in Arabic. In the Quran, there are verses warning Muslims that Allah will declare war on the practitioners of riba (Al-Baqarah, 278-279).
There are also verses in the Bible that condemn the practice of usury. Hinduism, too, condemns the practice of charging interest on loans. Unfortunately, many do not care.
What is more unfortunate is that a number of Muslim religious scholars have tried to find ways to sustain this debt-for-profit industry even though in Islam we are not allowed to gain any profit from lending money to others.
Granted, the "debt industry" is lucrative for those involved, but the situation for others, especially the working class and the low-income group, will become increasingly difficult and miserable when the level of indebtedness increases.
A question that needs to be asked is, when are we going to realise that we need to go back to the teachings of our religion for the sake of the wellbeing of future generations.
The writer is a professor at the Faculty of Business and Accounting, University Malaya
