When US Treasury Secretary Scott Bessent was asked about America’s national debt crossing the astonishing US$40 trillion mark, his response was strikingly simple:
“There’s nothing magic about the $40 trillion number… we can grow our way out of that.”
He subsequently argued that global economic growth is the way to deal with the mountain of debt. It is an interesting proposition, particularly for Malaysia.
America’s debt has now exceeded 120% of its GDP, while Malaysia’s federal government debt remains below 65% of GDP. The comparison should not be taken too literally because the two economies, currencies, financial markets and debt structures are very different.
Nevertheless, Bessent’s argument raises a question Malaysia should be asking itself. Can stronger economic growth make the task of managing and eventually reducing our debt burden easier?
The answer is yes—but only partly.
Malaysia has just provided an encouraging reason to ask the question. The economy grew by 6.3% in the fourth quarter of 2025, its strongest quarterly performance in three years, lifting full-year growth to 5.2%.
This was particularly noteworthy because growth had slowed to 4.4% in both the first and second quarters. Services, manufacturing and agriculture all contributed to the late-year acceleration. However, the 6.3% figure should not be interpreted as evidence that Malaysia has suddenly entered a sustained 6% growth cycle. One quarter is insufficient to establish such a trend.
The more encouraging message is that the economy proved more resilient than initially expected despite tariffs, geopolitical uncertainty and weaker external conditions.
And this is where the debt question becomes important.
Economic growth increases the denominator of the debt-to-GDP ratio, while a growing economy also generates more business activity, employment, corporate profits and, ultimately, tax revenue. If expenditure is kept under control while nominal GDP and government revenue grow faster than debt, the fiscal burden can gradually become more manageable.
But growth alone cannot solve a fiscal problem.
Bessent's proposition is controversial precisely because America’s debt is growing alongside persistent deficits. Analysts have pointed out that even strong economic growth cannot by itself eliminate a debt burden of such magnitude without spending restraint and additional revenue.
The lesson for Malaysia is therefore not “grow instead of reform”. It is grow while reforming.
Malaysia has spent considerable political and administrative energy on fiscal consolidation, subsidy rationalisation, tax reform and structural reform. These are necessary. But fiscal restructuring without sufficient economic expansion can eventually become a zero-sum exercise.
The Government has to find more revenue, cut more expenditure or borrow more simply to create room for the next priority. Taxation is the obvious alternative source of revenue. Economic growth itself is another. Borrowing is the third.
This is where the MADANI Government faces a difficult choice. Raising revenue through measures such as SST expansion, e-invoicing, high-value consumption taxation and more aggressive tax enforcement may strengthen government finances.
But taxation also has an economic and political cost.
For businesses, particularly SMEs, the issue is not merely the tax rate. It is compliance costs, cash flow, cascading effects and the cumulative burden of several measures introduced within a relatively short period. The intensity of tax enforcement can also create the perception that government is trying to extract more from an economy that is already struggling with rising costs.
The political consequences should not be ignored. The reactions to e-invoicing, SST and tax enforcement, together with the controversy surrounding wage increases and the results of recent by-elections and state elections, illustrate that fiscal measures eventually become voter issues.
So what is the alternative? It cannot simply be more government spending.
Government expenditure is constrained by the annual budget, the distinction between operating expenditure and development expenditure, existing commitments and the legal and administrative processes governing public expenditure.
Development spending is not a limitless pool of money that can be switched on whenever the Government wants to stimulate a particular industry. This is also why claims that a ministry has simply “exceeded its budget” can sometimes be misleading.
Government spending does not occur merely because a ministry wants to spend more. Allocations, supplementary allocations, transfers and expenditure commitments ultimately operate within the wider framework of the Ministry of Finance and the approved budgetary process.
The bigger question is therefore more strategic. Where can Malaysia create new sources of economic growth without relying indefinitely on higher taxation or higher government borrowing?
That means looking beyond conventional fiscal stimulus towards investment-led growth, new industries, higher productivity, technology, advanced manufacturing, food security, logistics, energy, digitalisation and sectors capable of creating new export earnings.
Government's role need not always be to spend money directly. It can use regulation, infrastructure, land, financing mechanisms, guarantees, public-private partnerships and catalytic investment to make private capital move into sectors that Malaysia wants to develop.
This is perhaps the most important lesson from the 6.3% Q4 growth. Malaysia has demonstrated that it can grow strongly while undertaking fiscal consolidation. The challenge now is to make that growth more productive, broader and sustainable.
Bessent may be overly optimistic in suggesting that America can simply “grow its way out” of a US$40 trillion debt mountain. But his provocative statement contains a useful lesson for Malaysia: fiscal consolidation cannot be the destination.
It must create the space for a stronger economy. Ultimately, Malaysia does not have to choose between fiscal discipline and growth. It has to achieve both. The real danger is to become so preoccupied with restructuring the existing economy that we forget to build the next one.
Goodbye Yellow Brick Road
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