Guan Eng details how RM1tril govt debt figure was calculated


  • Business
  • Thursday, 24 May 2018

KUALA LUMPUR: Finance Minister Lim Guan Eng (pic) has released details of how the RM1tril national debt figure was calculated.

This was in response to claims from former prime minister Datuk Seri Najib Abdul Razak that revealing the national debt would unsettle financial markets, alarm credit rating agencies and investor confidence.

Lim said that the RM1tril figure quoted by Prime Minister Tun Dr Mahathir Mohamad included the total government debt, government guarantees and lease payments for public-private partnerships (PPP).

"The official Federal Government debt is RM686.8bil (50.8% of GDP).

"In addition, the Government is already committed to pay for government guarantees for various entities which are unable to service their debts. This amounts to RM199.1bil (14.6% of the GDP)" he said.

Lim added that these government guarantees were for entities such as Danainfra Nasional Bhd (RM42.2bil), Govco Holdings Bhd (RM8.8bil), Prasarana Malaysia Bhd (RM26.6bil), Malaysia Rail-link Sdn Bhd (RM14.5bil) as well as an estimated RM38bil for 1Malaysia Development Berhad (1MDB).

"Based on the two items above, the debt stands at RM885.9bil or 65.4% of GDP," he said.

Lim also said that the Government also must make lease payments for "Public-Private Partnership" (PPP) projects such as construction of schools, roads, hospitals and police stations, which amount to RM201.4bil (14.9% of GDP).

"Hence, the Federal Government debt and liabilities amount to a total of RM1,087.3bil or 80.3% of the GDP as of Dec 31, 2017," he said.

"The new Government will carry out our administration based on the principles of competency, accountability and transparency (CAT). We want to establish the true baseline on the state of financial affairs, diagnose the problems and then prescribe all necessary remedies," he said.

Lim said that "the decision to tell the truth may unnerve Najib but we firmly believe that by recognising our true debt situation today, it will enable the Federal Government to take concrete action to regularise and strengthen our financial state," said Lim in a statement on Thursday (May 24).

"This administration puts the interests of the people first, and hence, it is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces in the future," he said.

However, Lim reassured the public saying; "The financial sector is stable, the banking sector is well-capitalised and there is sufficient liquidity in the market".

The internationally accepted norm for a country's debt-to-GDP ratio is 55% or below.

Under the previous government, it was stated as 50.4%.

Here is his statement in full:

The former prime minister Najib Abdul Razak has issued a statement criticising the present government's announcement that our debt is now RM1 trillion.

He said it "will just unsettle the financial markets, alarm the credit rating agencies and investors' confidence in our institutions, such as our Bank Negara Malaysia".

We would like to explain that the new government will carry out our administration based on the principles of competency, accountability and transparency (CAT). We want to establish the true baseline on the state of financial affairs, diagnose the problems and then prescribe all necessary remedies.

Let me take this opportunity to explain the RM1 trillion worth of liabilities as of Dec 31, 2017, as previously announced.

1. The official federal government debt is RM686.8 billion (50.8% of the gross domestic product, or GDP).

2. In addition, the government is already committed to paying for government guarantees for various entities that are unable to service their debts. This amounts to RM199.1 billion (14.6% of GDP).

The committed government guarantees would include entities such Danainfra Nasional Bhd (RM42.2 billion), Govco Holdings Bhd (RM8.8 billion), Prasarana Malaysia Bhd (RM26.6 billion), Malaysia Rail Link Sdn Bhd (RM14.5 billion) as well as an estimated RM38 billion for 1MDB.

Based on the two items above, the federal government debt would amount to RM885.9 billion. This represents the 65.4% of the GDP as highlighted by Prime Minister Dr Mahathir Mohamad yesterday.

3. However, in addition to the above, the federal government is also committed and obligated to make lease payments (including rental, maintenance and other charges), for a whole list of "Public-Private Partnership" (PPP) projects such as the construction of schools, hostels, roads, police stations, hospitals, et cetera. The lease commitments which were designed specifically to circumvent the federal government guarantee and debt limits amount to RM201.4 billion (14.9% of GDP).

Hence, the federal government debt and liabilities amount to a total of RM1,087.3 billion or 80.3% of the GDP as of Dec 31, 2017.

Malaysians are rightly concerned with our debt situation, as we were in the opposition.

However, let me emphasise that the obligations and financial commitments of the federal government are unchanged before May 9 and after elections today.

The only change is that the new federal government has decided to call a spade a spade.

This new government puts the interest of the people first, and hence it is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces at a later date.

In the short term, this decision, to tell the truth, may unnerve Najib. However, we firmly believe that in the medium term, by recognising our true debt situation today, it will enable the federal government to take concrete actions to regularise and strengthen our financial state.

I would like to thank and credit the professionalism of the Treasury officials led by Deputy Secretary-General Zauyah Mohd Desa in preparing and presenting all the relevant information without fear or favour. This was done without any interference from politicians attempting to manipulate the figures and hide our real debt and obligations.

Having engaged intensively with the Treasury team over the past few days, including listening to various constructive proposals and suggestions to resolve these difficult challenges, I am confident that we can overcome them.

Let me emphasise that the fundamentals of the economy remain strong. The financial sector is stable, the banking sector is well-capitalised and there is sufficient liquidity in the market.

We believe that with the new administration focused on CAT, investor confidence will only be strengthened over time.

Together with the commitment of the new government as well as the support of Malaysians all over the country, we will definitely succeed in saving our country.

YB Lim Guan Eng
Menteri Kewangan
Putrajaya
24 Mei 2018

 


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