Are asset sales the wisest way to manage national debt?

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Asset Sales as a Debt Management Strategy: A Question of Wisdom and Long-Term Impact

The assertion that selling assets held by Khazanah Nasional Bhd and Permodalan Nasional Bhd (PNB) represents the wisest approach to managing national debt has been called into question, primarily by former prime minister Datuk Seri Najib Razak. His argument centres on a comparative analysis of the growth rate of these sovereign wealth fund assets against the interest rates associated with government debt, suggesting that retaining and growing these assets yields a greater financial return than the interest saved by their sale. This perspective highlights a critical debate in public finance: the trade-offs between immediate debt reduction and the potential for long-term asset appreciation.
Contrasting Asset Growth and Debt Interest

Najib Razak has argued that the annual growth rate of assets managed by Khazanah (9.6 per cent) and PNB (9.2 per cent) significantly outpaces the typical interest rate on government debt, which he estimates to be around 3.6 per cent per annum. This differential growth rate implies that holding onto these assets, allowing them to appreciate over time, could generate more wealth than the cost of servicing the debt. For instance, he pointed to Khazanah's asset growth from RM33.7 billion in 2008 to RM115.7 billion by the end of 2017, representing an RM82 billion increase. Selling these assets in 2008 to reduce debt would have saved approximately RM10.1 billion in interest costs over nine years, a figure considerably lower than the actual asset appreciation.
The Magnitude of PNB's Asset Growth

Permodalan Nasional Bhd (PNB) also exhibits substantial asset growth, further bolstering the argument against premature asset liquidation. During the period from 2008 to end-2017, PNB's total assets reportedly expanded from RM120 billion to RM279.2 billion. Beyond its overall asset base, PNB manages proprietary funds, which Najib identified as national assets. These specific funds saw a considerable increase, growing from RM12 billion in 2008 to RM43.9 billion by the end of 2017. This sustained and significant growth in PNB's assets and its proprietary funds underscores the potential long-term value that could be forfeited through immediate asset sales.
Potential Misallocation of Asset Sale Proceeds

A deeper concern raised is the potential purpose behind the proposed sale of national assets and land. Najib suggested that these sales might not be primarily aimed at reducing the national debt, but rather at compensating for an estimated RM40 billion revenue shortfall. This shortfall, according to his analysis, stems from various populist policies, including the transition from the Goods and Services Tax (GST) to the Sales and Services Tax (SST), a three-month tax holiday, and losses from the reintroduction of bulk subsidies. The implication is that if the forthcoming budget reveals a deficit, it would lend credence to the idea that asset sales are being used to cover revenue gaps rather than for strategic debt management.

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Are asset sales the wisest way to manage national debt?

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