KUALA LUMPUR (Sept 29): Malaysia's Finance Ministry says the country's direct debt grew to 51.2% of its gross domestic product (GDP) in 2018, from 50.1% in 2017, because the Pakatan Harapan government refuses to resort to off-balance sheet financing to cover up dubious debts, which it said the previous administration had practiced.

In a statement today, the Ministry of Finance said a substantial portion of the government's debt and liabilities, which stood at RM1.087 trillion as at end-2017, comprises hidden debt and liabilities that the previous government "had deceitfully kept under wraps or disguised as off-balance sheet items".

This, said its minister Lim Guan Eng, included RM38.3 billion worth of 1MDB debt, "which we discovered that the then BN government was secretly servicing".

Then there were 'other liabilities' totalling RM260.1 billion, which involved off-balance sheet government spending masked as 'public private partnership (PPP)' or 'private finance initiatives (PFI), under which the financial cost, risks and obligations lie entirely with the federal government.

"Hence, the PPPs and PFIs were abused by the then BN government to give the false perception of low budget deficits, and a corresponding lower level of perceived debt," said Lim.

The RM1.087 trillion figure, which was determined following a comprehensive review of the government's financia lobligations after PH took over the government in May 2018, has been confirmed by the bi-partisan Special Parliamentary Select Committee on the Budget in its report dated July 17, Lim further noted.

As for committed government guarantees, he said these rose due to projects which are already in progress, such as MRT2 and Pan-Borneo Highway via DanaInfra, and LRT3 via Prasarana.

"However, cognizant of the fact that these projects will substantially increase our committed government guarantees in future years, the new government has successfully renegotiated the cost of these mega-projects. The overall cost of LRT3 was reduced from RM31.6 billion to RM16.6 billion, the MRT2 construction cost reduced from RM39.4 billion to RM30.5 billion while the ECRL construction contract with China Communications Construction Company (CCCC) was reduced from RM66.5 billion to RM44 billion. 

"The reduction in cost for these three projects alone would reduce our future committed government guarantees by at least RM46 billion compared to if all projects had continued without any rationalisation," Lim reiterated.

Asset divestment decision lies entirely with PMO
Meanwhile, Lim said the country's decision to divest non-core and non-critical assets to rebalance its portfolio and realign the role of the public sector lies completely with the Prime Minister's Office. "The proceeds from these divestments, when returned to the treasury in the form of dividends, will be allocated towards further reduction of our debt and liabilities," he said.

In addition, the government is actively pursuing the recovery of assets bought using funds misappropriated from 1MDB globally. "We have recovered approximately RM925.1 million to date, not including the sale of the mega-yacht Equanimity for RM523 million. These and future recovery proceeds will go entirely towards the repayment of 1MDB debts," he said.

Notwithstanding the challenges inherited from the previous government, he said the government remains committed to fiscal consolidation while ensuring that Malaysia remains on a sustainable growth path.

https://www.theedgemarkets.com/article/mof-defends-rise-direct-debt-under-ph-government