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Abuses pushed Malaysia's debt over 1 trillion ringgit says Mahathir

FILE PHOTO: Malaysia's Prime Minister Najib Razak and his wife Rosmah Mansor arrive at the Bali Nusa Dua Convention Center before the opening ceremony of the Association of South East Asian Nations (ASEAN) Summit in Nusa Dua, Bali November 17, 2011. REUTERS/Stephen Morrison/Pool/File Photo

KUALA LUMPUR (Reuters) - Malaysia is saddled with over 1 trillion ringgit ($251.70 billion) in debt, Prime Minister Mahathir Mohamad said on Monday, blaming the previous government led by former protege Najib Razak who now faces domestic graft investigations.

Mahathir, 92, led an opposition coalition to a spectacular win over Najib's previously undefeated ruling alliance in a general election on May 9, having campaigned aggressively over people's rising living costs and a multi-billion dollar scandal at state fund 1Malaysia Development Berhad (1MDB).

"We find that the country's finances for example, was abused in a way that now we are facing trouble settling debts that have risen to a trillion ringgit," Mahathir said when speaking for the first time to staff of the prime minister's office.

"We have never had to deal with this before. Before we never faced debts higher than 300 billion ringgit, but now it has climbed to 1 trillion ringgit," Mahathir said.

In his first week in charge, Mahathir announced that a broad-based goods and services tax (GST) would be zero-rated from June 1, as his government works to replace it with a reinstated sales and services tax (SST).

Mahathir had also promised to reintroduce fuel subsidies besides doing away with GST, all part of his coalition's pledge to tamp down rising living costs.

Mahathir's fiscal measures, however, would widen Malaysia's fiscal deficit and are credit negative without any offsetting measures, according to ratings agency Moody's.

Najib's government had planned to collect 43.8 billion ringgit ($11.05 billion) in 2018 in GST, about 18 percent of total revenue.

During the election campaign, Najib had warned that Mahathir's economic proposals would result in debt ballooning to over 1 trillion ringgit.

Najib also rebutted opposition claims that federal debt had risen to alarming levels under his governance, and said that debt amounted to about 50.9 percent of its GDP at June 2017, which was below the government's limit of 55 percent.

Mahathir said last week that many of the figures recording the country's financial position may be false.

Malaysia's anti-graft agency has summoned Najib to give a statement on Tuesday in connection with a probe on SRC International, a former unit of 1MDB.

The summons came days after police raided six premises linked to the former prime minister as part of investigations into the state investment fund that Najib founded in 2009.

Among the items seized include 284 boxes of designer handbags and dozens of bags filled with cash and jewellery, from a luxury condominium in the centre of Kuala Lumpur linked to Najib.

($1 = 3.9730 ringgit)

(Reporting by Joseph Sipalan; editing by Praveen Menon and Simon Cameron-Moore)