Between development and managing debts, you can’t take sides — Guan Eng

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PUTRAJAYA (Oct 1): Information can be a double-edged sword, depending on how it is being perceived and in the case of the country’s debt level, all is well as the government is balancing it within its means, Finance Minister Lim Guan Eng said.

“In the deficit economy, one can’t avoid from borrowing, but it is important to note on how it is being channelled,” he said.

While it may sound like an old track record, Lim stressed the fact that the debt situation was inherited from the previous Barisan Nasional (BN) government, which conveniently resorted to off-balance-sheet financing to cover-up dubious debts.

Since Pakatan Harapan (PH) took over the government in May 2018, a comprehensive review of the government’s financial obligations was carried out, which confirmed that it had accumulated RM1.087 trillion of debt and liabilities as at the end of 2017.

Despite the government’s total debt and liabilities being reduced to 75.4% of Gross Domestic Product (GDP) in 2018 from 79.3% in 2017, direct debt increased to 51.2% of GDP from 50.1%.

“This (increase in direct debt) is basically to finance our fiscal deficit, especially development expenditure, (even though) we (PH) have not undertaken any (new) megaprojects.”

“These are the development projects under the five-year plan (11th Malaysia Plan 2016-2020). Development expenditure must continue, especially in critical areas such as hospitals and public infrastructure,” he told Bernama in an exclusive interview.

Under the BN government, these deficits or shortfalls were covered by government revenues.

“But we cannot do that under the present administration because we have to use some of it to pay off interest payment and debt obligations. For instance, we have begun paying for 1Malaysia Development Bhd’s (1MDB) interest and debt obligations,” Lim said

He said payments related to 1MDB would only increase over time before it starts to taper off after 10 years.

“Remember the world-renowned scandal involved RM52 billion (including interest) with 20 years tenure. In 2020 alone, we are looking at an increase in debt payment interest of up to RM2 billion,” the Finance Minister revealed.

That additional obligations and payments were done discreetly by the previous government, making the balance sheet look as if there are rooms to borrow further.

But the PH government is being very open on how it is funding the development projects, which is in the form of loans that have resulted in an increase in its direct debts, he said.

Lim said the money from Tabung Harapan Malaysia amounting to RM203.29 million as at March 31, 2019, would be fully used up by end of this year to settle part of 1MDB debt and interest obligations.

In the interview that lasted almost one hour, the Finance Minister was clear in his message that between development expenditure and managing the country’s debt, one can’t take sides.

Both have to go hand in hand as long as it is contained within its means.

To date, Lim said the PH government is very much committed to fiscal consolidation of 3.4% in 2019.

“We intend to stick to the target,” he said.

“Even though we have a fiscal deficit, we do not run a twin deficit. We have been enjoying Current Account Surplus, which is very important. We are among the very few countries in the world without a twin deficit and it gives a lot of confidence,” he said.

A current account surplus means an economy is exporting a greater value of goods and services than its is importing.

The country's economy has also remained solid despite the external headwinds with 4.9% growth recorded in the second quarter of this year from 4.5% in the first quarter.

Hence, Lim said there is also enough room for contingency measures or stimulus packages if the global economy scenario warrants it.

“We still hope that the trade talks between the United States and China will be a successful one so that we can continue to enjoy sustainable economic growth.”

Lim also said the three-year timeframe to restore the country’s fiscal health remains.

“There are talks of a possible economic downturn next year (but) I don’t think it will affect our three years rehabilitation of restorative programme to put Malaysia back on track by 2021 – fiscally speaking.”

“With the right pre-emptive measures we should be able to stick to the three-year rehabilitative fiscal programme,” he added.

Earlier in a statement, Lim said the new government has been praised by international rating agencies and investment analysts for the marked improvement in transparency, as well as the standards of good governance.

“Their repeated affirmation of our sovereign ratings at A-/A3 since then, despite the increased transparency in the state of our balance sheet, demonstrates their conviction that this government is taking concrete measures to address the weaknesses.

“Now, we hope the people can see that we are making progress,” he said.