Building A New Malaysia | Restructure, Reconstruct, Reform

A New Malaysia | Malaysia’s RM1 Trillion Debt 


The new Malaysian government has revealed that Malaysia’s Federal Government liabilities stood at an alarming 1.087 trillion ringgit as of Dec. 31, 2017, or 80.3% of gross domestic product which differs significantly from the reported figure of RM608 billion or 50% of GDP, a ratio very much within the statutory debt level.  In past weeks, there has been much argument about how much is our country’s debts and what is the correct definition of debts.  

How much exactly are Malaysia's Debts?
In layman terms, Malaysia’s debts can be categorised into 3 groups; the real debts which are actual amounts spent, owing and financed through issuance of government papers; the government guarantees which are contingent liabilities which potentially can be turn into real debts if the borrower does not pay the loan and lastly the future lease payment obligations to private-public partnership (PPP) project contractors. 
The required reporting of our debts, in accordance with international standards, is RM686.8 billion or a reasonable ratio to the GDP of 50.8% as at the end of 2017.

However, if we add the rapidly growing contingent liabilities and committed future project payments, the overall consolidated public sector liability-to-GDP ratio is  80.3% and they need to be appropriately managed immediately.

The total sum of RM1.08 trillion debts can be broken down into:-

Malaysian Federal Government RM1 Trillion Liabilities at the end of 2017 (billion)

Source: Federal Government Financial Statement 

At the beginning of the Najib administration in 2008, the sum total of both real debts and government guarantees was RM376 bil or 48.8% of GDP.  By 2017, at the end of his second term in office, the government had more than doubled the real debt level and also tripled the amount of guarantees provided to Statutory Bodies and GLCs.  The new government also presented another category of liability, RM204 billion in future lease payments for PPP projects (not much information available on this group of liabilities).  

Do taxpayers need to pay for these Liabilities?

Yes and No, depending on the type of liability.

What type of Liabilities do the Malaysian Government Owe, and How Much?
What is the breakdown of our debts and what type of debts are they?

(1) The Real Debts (This figure is reported by Bank Negara Malaysia on a quarterly basis)  
These debts are an accumulation of budget deficits over the years.  Every year, if the government spends more than the revenue collected, they will need to borrow to fund the difference (budget deficit).  In the 10 years of the Najib administration (2008 to 2017), our official debts had grown by RM380 billion or 124% from RM306 billion in 2008. In percentage terms, average annual growth would be 12.4% per annum, more than twice the pace of our GDP growth rate.  

Malaysian Federal Government's Official Debts from 1990 - 2017

Source: Federal Government Financial Statement 

The current real debt amount of RM686.8bil is 50% of GDP, an acceptable level indicating that the debt is still manageable. These government debts are financed through borrowings and they need to be repaid according to the terms of borrowing. It was reported that in 2017, debt servicing amounted to RM28.9 billion, equivalent to 13.1% of the government’s operating expenditure.  In order to reduce the debts, we will need to either reduce spending or increase revenue to cover the current deficit and also accumulated past deficits.  It was also reported that the gross borrowing in 2017 amounted to RM108 billion due to the higher expenditure.

Do taxpayers need to pay for these Real Debts?

Yes, we do, through our contribution to the country's revenue in the form of taxes.

(2) The Potential Future Debts (This figure is reported by MOF)
This category of liability is a form of sovereign guarantee which the government issues to enable government-linked companies to undertake large-scale development projects and facilitate them in securing private financing. These government guarantees are a risk-sharing method and they provide the needed comfort level to secure cheaper financing for high-risk large-scale infrastructure projects.  

Malaysian Government Guarantees by Sector in 2016

Source: Federal Government Financial Statement 

In 2008 when the Najib administration came into power, this category of liability stood at a comfortable RM69 billion which is 9% of GDP.  However, within the span of 10 years, by the end of 2017, this group of liabilities had tripled to RM199 billion which adds another 14.7% to the country’s liability-to-GDP ratio.

Malaysian Government Guarantess from 2008 to 2017 (RM million)

Source: Federal Government Financial Statement 

Do taxpayers need to service these guaranteed loans or the interest?

No, we don't.  The Statutory Bodies and GLCs who borrowed are responsible for servicing the loans.  However, if the GLCs default on the loans, these guarantees turn into real debts for the country and the government is obligated to pay the borrowed amount. As to whether Malaysian taxpayers will need to foot this RM200bil bill in the future, proper assessment of the borrowing companies needs to be made to ascertain the potential and risk of loan defaults in the future.   

List of GLCs benefiting from Malaysian Govt Guaratees

Source: Federal Government Financial Statement 2016

(3) The Future Debts
The lease commitments to be paid for public-private partnership (PPP) projects is RM201.4 billion (14.9% of GDP). According to MOF, these “off-balance sheet” liabilities are commitments by the government to make payments in the pre-determined future for rental, maintenance and other charges for public-private partnership (PPP) projects such as the construction of schools, roads and hospitals. Unit Kerjasama Awam Swasta (UKAS) is the central agency of the Prime Minister’s Office assigned to facilitate and coordinate Public Private Partnership (PPP) procurement in the country.
There isn’t much information on the PPP projects that are available to the public. According to UKAS, the following are achievements of PPP projects in Malaysia since 1983. 

Do taxpayers need to service these agreed future payments?

We don't know until more information on the PPP contracts are made available to the public


Location: Malaysia

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