KUALA LUMPUR (Oct 14): Auditor General (AG) Datuk Nik Azman Nik Abdul Majid (pictured) has urged Putrajaya to impose a ceiling on the government guarantee the latter is allowed to provide in future.

"My advice, as an auditor, is on top of the 55% debt-to-GDP ceiling, we could add another 10 percentage points of ceiling for government guarantee to viable projects, and another five percentage points of ceiling for riskier debts from government-owned companies.

"Because currently we have no limit to cap the government guarantee. So the overall debt-to-GDP ceiling would be 70%, but including the guarantees provided by the government," he told reporters at a press conference after the briefing the Public Accounts Committee (PAC) on the 2018 Auditor General Report on Federal Government's Financial Statement today.

Nik Azman said while the government is authorised to provide loan guarantees under the Loan Guarantee (Corporation) Act 1965, a policy must be set up to fix a ceiling on government guarantee, by taking into account the country's financial position, and the financial and project viability of the company that applies for such guarantee.

Nik Azman also said this is the first time the AG issued an Emphasis of Matter (EOM) to the government's account, despite the financial statement remaining true and fair.

"The EOM is a way for us to bring attention of the readers to certain part of the financial statements, our opinion for them is still unqualified," he said.

Nik Azman said the AG was able to highlight this for the first time because of a more transparent disclosure in the 2018 federal government financial statement prepared by the Accountant General.

The AG report on the 2018 federal government financial statement highlighted in the EOM that the government paid RM2.84 billion for guaranteeing loans by five companies under Ministry of Finance Inc.

Government guarantees on loans obtained by the five companies, which were approved before 2018 by the previous administration, totalled RM76.075 billion, AG said.

"As of Dec 31, 2018, the outstanding of these loans stood at RM66.34 billion, which will mature by 2041 except for a loan of RM94.38 million which will expire in 2019.

"In 2018, the government has advanced RM2.839 billion on a secured and mature loan repayment on behalf of one of these companies. Of these, RM1.753 billion was paid by the previous administration while another RM1.086 billion was paid by the current administration," it said.

"The current administration has continued such commitment to avoid the event of default which could result in the government's overall repayment of loans. Pursuant to Section 8 of the Loan Guarantee (Corporation) Act 1965, the company has the obligation to make repayments to the government for all payments made by the government. However, the ability of these five companies to repay the advances is uncertain," AG added.

Therefore, Public Account Committee (PAC) chairman Datuk Dr Noraini Ahmad (BN- Parit Sulong), who also present at the press conference today, said the committee is of the view that the government should tighten rules in establishing special purpose vehicles in future.

Govt repay RM2.8 billion loans on behalf of five MoF Inc companies in 2018

Source: AG Report