This article first appeared in The Edge Financial Daily on May 25, 2018

PUTRAJAYA: The ministry of finance (MoF) has provided a breakdown of the federal government’s RM1.087 trillion financial obligations as at Dec 31, 2017 that was first highlighted by Prime Minister Tun Dr Mahathir Mohamad shortly after taking over Putrajaya.

In a statement yesterday, Finance Minister Lim Guan Eng said the government’s total liabilities of over RM1 trillion included federal government debt, government guarantees, and lease payments for public-private partnership (PPP) projects such as construction of schools, hostels, roads, police stations and hospitals.

The amount comprised official federal government debt of RM686.8 billion (50.8% of gross domestic product [GDP]), government guarantees of RM199.1 billion (14.6% of GDP), and lease payments for PPP projects of RM201.4 billion (14.9% of GDP).

“Hence, the federal government debt and liabilities amount to a total of RM1.087 trillion or 80.3% of GDP as at Dec 31, 2017”, Guan Eng said in the statement.

The government had already committed to pay for government guarantees for various entities that are unable to service their debts, which amounted to RM199.1 billion.

“The committed government guarantees would include entities such as 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 (1Malaysia Development Bhd),” Guan Eng said.

Meanwhile, lease payments for the PPP projects included rental, maintenance and other charges.

“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),” he said in the statement.

“We would like to explain that the new government will carry out our administration based on the principles of competency, accountability and transparency. We want to establish the true baseline for 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 at Dec 31, 2017 as previously announced,” Guan Eng said.

“This new government 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 at a later date,” he said.

Guan Eng said in the short term, this decision to tell the truth may unnerve former prime minister Datuk Seri Najib Razak.

“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,” he said.

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, Guan Eng said he is confident that the new government can overcome these challenges.

“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," he said.

On Wednesday, Najib criticised the present government’s announcement that national debt had reached RM1 trillion.

Najib said the announcement by Dr Mahathir “will just unsettle the financial markets, alarm the credit rating agencies and investors’ confidence in our institutions such as our Bank Negara Malaysia”.

In response, Guan Eng said in a press conference yesterday that the FBM KLCI's negative performance was similar to its regional peers.

"That was his (Najib) claim that the market has reacted (against government announcement of RM1 trillion liabilities), but if you look at the performance of the share market, it is subject to many factors, after all even today (yesterday) other regional markets are similarly affected. But we want to speak the truth to the people as well as the market, let them not be deceived anymore," Guan Eng said.

"Let's allow the market to adjust according to its own dynamics. I do not think that you can identify whether the market rise or fall according to one statement that has been made by the federal government, I would like to repeat that the time has come for us to lay the facts on the table," he said.

Guan Eng also said the government will soon announce whether it could keep its budget deficit target of 2.8% of GDP according to Budget 2018.

"(For the) budget deficit, we will let you know when the time is right. I think it will not be long, because we have to finalise certain decisions, hopefully [by] the next cabinet meeting, we will be able to crystallise many of these issues," he said.