Short-Run Adjustments and Long-Run Drivers of Public Debt in Malaysia: Evidence from an ARDL Approach

Malaysia’s persistent rise in public debt raises a deeper empirical question than whether debt has become large: which macroeconomic conditions explain its short-run movement and long-run sustainability? This study examines the economic determinants of public debt in Malaysia by analyzing annual data from 1974 to 2023 using the Autoregressive Distributed Lag (ARDL) approach. Public debt is modelled against domestic savings, globalization, government expenditure, inflation, interest rates, and trade to distinguish temporary fiscal adjustment effects from structural debt determinants. The findings indicate that domestic savings, globalization, government expenditure, inflation, and interest rates significantly influence public debt in the short run, suggesting that Malaysia’s debt position is sensitive to immediate financing conditions, external integration, fiscal intervention, and monetary-price dynamics. In the long run, only domestic savings and trade remain significant, indicating that sustained debt reduction depends more on internal resource mobilization and external-sector strength than on short-term macroeconomic adjustments. The study contributes to the public debt literature by reframing Malaysia’s debt dynamics as a time-horizon problem rather than a single-channel fiscal issue. Theoretically, the findings connect Keynesian short-run adjustment mechanisms with the Two-Gap Model and Classical fiscal sustainability logic, showing that the determinants of public debt differ across temporal horizons. The results imply that durable debt management in Malaysia requires policies that strengthen domestic savings capacity, improve trade competitiveness, and reduce reliance on short-term fiscal or monetary responses.

Public debt, fiscal sustainability, domestic savings, trade openness, ARDL model

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