Govt should include 1MDB debt, govt guarantees in its estimates for 2022


PROJECTIONS for Budget 2022 should have been made based on the government’s total debt and liabilities which stood at RM1.33 trillion as at June 2021.

Economist Dr Nungsari Ahmad Radhi expressed his concerns for the federal government’s financial position beyond 2022 as its calculations for the expansionary budget next year only included the government’s direct debt of RM958 billion.

“They projected things will improve after 2022 but I have my reservations as their calculations included only government direct debt of RM958 billion.

“The government also has guarantees to its own entities which are unable to service their debts and will therefore depend on the government to service it. That would be at least another RM200 billion.

“There is also another RM30 billion needed to settle 1Malaysia Development Bhd’s (1MDB) debt,” he told The Malaysian Reserve.

In its fiscal outlook and federal government revenue estimates for 2022, the Ministry of Finance (MoF) stated that as at the end-June 2021, the government’s debt stood at RM958.4 billion or 63.3% to GDP.

In terms of statutory debt limits, accumulated domestic debts of Malaysian Government Securities, Malaysian Government Investment Issue and Malaysia, Islamic Treasury Bills constituted 58.8% of GDP, below the 65% statutory debt ceiling.

The debt ceiling was increased from the previous 60% under the Temporary Measures for Government Financing (Coronavirus Disease 2019 [Covid-19]) Act 2020 (Act 830).

MoF disclosed that the federal government debt and liabilities exposure stood at RM1.33 trillion comprising of its debt, committed guarantees of RM190.4 billion, RM32 billion worth of remaining 1MDB debt as well as cash commitments of projects under public-private partnership, private finance initiative and PBLT Sdn Bhd totalling to RM152.9 billion, equivalent to 88.1% to GDP.

The government projected its gross borrowings for 2021 will be RM210.78 billion, where gross domestic borrowings are estimated to reach RM205.5 billion or 97.5% of the total.

It, however, expected repayments for the total sum to be RM110.38 billion thus, making its estimated net borrowings to stand at RM100.4 billion.

MoF also revealed that total outstanding government guarantees (GGs) increased slightly to RM300.4 billion or 19.8% to GDP as at end-June 2021, mainly attributed to new issuances by the Public Sector Home Financing Board (LPPSA) and DanaInfra Nasional Bhd to finance civil servants housing loan facility and ongoing public infrastructure projects, respectively.

“In terms of proportion by segment, more than half (54.2%) of the GGs issued are for infrastructure-related financing, followed by services (26.6%), investment holding (8.3%), utilities (6.8%) and others (4.1%).

“The 10 main GGs constituted more than 80% of total guarantees,” said MoF. The loan guarantees for the 10 main recipients totalled to RM253.26 billion.

Nungsari said Putrajaya would need to service some RM200 billion for the loan guarantees as the entities cannot service their own debts except for LPPSA, Pengurusan Air SPV Bhd and Khazanah Nasional Bhd where their loans totalled to RM51.18 billion.

“Their forecasts say the debt-to-GDP will hit 65% and go downwards and that financing requirements will peak at 15% of GDP (about RM210 billion) and decline thereafter.

“I do not quite believe those estimates because they should include the RM200 billion debt of the government guarantees which they also have to service.

“RM1.33 trillion is 88% of GDP, while RM958 billion is 63% of GDP. That is quite a difference. At 63% to GDP, financing requirements stand at 15% or about RM210 billion.

“What would it be if debt-to-GDP is 88%? A straight-line extrapolation gives almost a 21% GDP financing requirement,” said Nungsari, adding that the debt ceiling of 65% might not be enough for the government next year.

MoF said the government’s debt is projected to reach 66% to GDP, while its statutory debt at 63.4% by the end of 2022.

Meanwhile, MoF added that committed guarantees slightly increased to RM190.4 billion or 12.6% to GDP from RM185.7 billion in 2020, mainly due to issues by DanaInfra and Malaysia Rail Link Sdn Bhd in carrying out existing transport infrastructure projects.

As for 1MDB, a total of RM18.2 billion of assets linked to the sovereign fund has been seized or recovered and placed into the Assets Recovery Trust Account under the custody of the Accountant General’s Department.

MoF noted that the government has paid up to RM12.8 billion for the sovereign fund’s financial commitments and debt servicing via loans and advances from the government or MoF Inc, amounting to almost RM10 billion as well as utilisation of the Trust Account.

“The Trust Account which also earns placement profits (hibah), stood at RM15.3 billion and is currently sufficient to cover 1MDB’s obligations up to 2022.

“1MDB’s overall outstanding financial obligations, composed of both principal (RM32.2 billion) and interests or profits on the debt (RM7.1 billion), amounted to RM39.3 billion,” it added.

The federal government’s allocation for 2022 expenditure will increase by 3% or RM9.6 billion to RM332.1 billion compared to RM322.5 billion allocated for this year.