KUALA LUMPUR: DAP national publicity secretary Tony Pua claims that Prime Minister Datuk Seri Najib Razak did not address in Budget 2015 the pertinent issue of federal government debt, which he said is now close to RM570 billion as of June 2014.
“All the debts that the government has racked up, through the state agencies, were during Najib’s administration over the last five years, particularly [via] 1MDB [1Malaysia Development Bhd],” he told reporters after the Budget 2015 speech in Parliament last Friday, citing that 1MDB alone has racked up RM36 billion in debt.
“We want to know how [this debt is] going to be dealt with to ensure that the country’s financial system [will not] be at risk,” he said, adding that he was disappointed in the budget.
In an earlier statement, Pua noted that the targeted budget deficit of 3% for 2015 — a sharp reduction from 3.5% in 2014 — is a “pretend” target.
“This seemingly healthier figure masks the fact that much of the government-related expenditure today are actually carried out outside the ‘framework’ of the budget,” he said.
Pua said the clearest indicator of such expenditure is the level of the government’s “contingent liability” which is tucked away in a remote corner of the Economic Report 2014/2015.
He said the figure essentially refers to hidden debt, which are not part of the official federal government debt figure, but are guaranteed by Putrajaya.
“As at June 2014, the federal government’s debt has increased to RM568.9 billion from RM539.9 billion at end-2013. The latest figure works out to [be] 52.8% of Malaysia’s gross domestic product , a shade below the legal limit of 55%,” he said.
While this figure is itself a concern, what is more worrying is the contingent liability figure which has increased more significantly from RM84.3 billion in 2009 to RM157.5 billion as at December 2013, or an increase of 86.8% over the past five years, he pointed out.
Pua said the figure is expected to increase further in 2014 and 2015 due to the numerous massive infrastructure projects being carried out by state-owned corporations such as the MRT Corp Sdn Bhd and Syarikat Prasarana Negara Bhd.
For example, he said in 2013, the federal government guaranteed RM6.5 billion for the MRT construction, up RM4.1 billion from RM2.4 billion in 2012.
“This figure is expected to increase much further this year as the ongoing first phase of the MRT project alone will cost in excess of RM22 billion. The prime minister had also announced in his budget speech the launching of MRT Phase 2 from Selayang to Putrajaya at RM23 billion,” he noted.
Pua also said the substantial increase to the country’s contingent liabilities relative to the budget deficit “highlights the extent to which our official budget deficit percentage is off-the-mark from the real deficits in our government expenditure”.
He cited 1MDB, a wholly-owned investment corporation of the Ministry of Finance (MoF) as an example. It has accumulated debts in excess of RM36 billion over just five years, of which RM5 billion is officially guaranteed by the federal government.
“However, it is implicitly understood by financial institutions that in the event of default, the entire amount [owed by 1MDB] will have to be bailed out by the federal government due to MoF’s ownership.
“This is similar to the Port Klang Free Zone scandal, where the government was forced to bail out the project with RM4.6 billion, despite no such official guarantee,” he added.
Moreover, Pua said it is disappointing that Najib, given the seriousness of the persistent deficits and growing federal government debt, has not addressed these critical concerns in his Budget 2015 speech.
He added that the benign official budget deficit belies the unchecked expenditure via off-balance-sheet government spending, which can have serious negative implications on the country’s financial system.
And in the event of a negative external shock, the system could be devastated, he added.
This article first appeared in The Edge Financial Daily, on October 13, 2014.