THE government should consider placing a limit on government guarantees between 5% and 10%, depending on the financial capability and project viability of a company, said Auditor-General Datuk Nik Azman Nik Abdul Majid.

Nik Azman said a policy to cap government guarantees will help control Putrajaya’s debt burden. For the year ending Dec 31, 2018 (FY18), the federal administration guaranteed RM2.84 billion in loans for five companies under the Ministry of Finance Inc namely KL International Airport Bhd, Gov Co Holdings Bhd, Asset Global Network Sdn Bhd, Jambatan Kedua Sdn Bhd and Dana Infra Nasional Bhd.

“If you decide based on the viability of a project and the financial strength of a company per say, then the ceiling can be set at two different levels.

“As an auditor, I would suggest that for risky companies, it can be capped at 60% of GDP where 55% would be on borrowings and 5% for guarantees. For financially strong companies, it can be higher at 70% of GDP (60% borrowing and 10% guarantee),” Nik Azman told reporters at a briefing on the federal government’s financial statement for 2018 in Parliament on Sunday.

The audit report states that a policy is needed to determine a ceiling by taking into account the country’s financial position and the company’s financial viability and project viability as the government has the authority to provide loan guarantees under the Loan Guarantee (Corp) Act 1965.

Government guarantees loans made by the five statutory bodies and 29 other state-linked companies amounted to RM266.5 billion as at end-2018 — an increase of nearly 12% from RM238.2 billion as at end-2017.

Apart from the cap on government guarantees, the auditor-general also proposed for the government to include an estimate in the next federal budget on the amount of loans it will acquire to repay its debt. He said this would increase transparency in the government’s financial management.

The audit report noted that federal debt was 7.9% higher at RM741.1 billion in FY18 from RM686.8 billion a year ago on new borrowings worth RM131.6 billion, over half of which were used to repay maturing loans. Overall national debt trimmed slightly but remained above RM1 trillion.

Despite a 2% drop in tax income for the year on the replacement of the Goods and Services Tax with the Sales and Services Tax, federal revenue was higher by 5.7% to RM232.9 billion from RM220.4 billion on higher income received on non-tax revenues and other proceeds.

Total budget spent in FY18 was RM287.1 billion comprised of RM230.96 billion in operational expenditure and RM56.1 billion in development expenditure. Fiscal deficit for FY18 was at 3.7% or RM53.39 billion of gross domestic product.

Nik Azman said the federal government’s FY18 financial statement submitted for audit on April 16, 2019, including statements on the government’s financial position, revenue and expenditure, financial performance, memorandum on account statements and notes to financial statements.

“The financial statement gave a ‘true and fair reflection’ of the government’s financial performance and cashflow for the period in accordance to the Financial Procedure Act 1957, Government’s Accounts Standards and International Public Sector Accounting Standard (Financial Reporting under the Cash Basis of Accounting),” he said.