That ‘RM1 trillion debt’ figure – more details, closer analysis necessary

Much controversy in recent days over that RM1 trillion federal government debt figure.

Let’s look at it a bit more closely:

RM
687bn – Federal government debt (50.8% of GDP)
199bn – Government guarantees for entities unable to service their debt (14.6%)
201bn – Lease payments on public-private partnerships (14.9%)
——
1,087bn
——

Now, let’s take a closer look at the government guarantees figure

40bn – PTPTN (student loans board)
4bn – Felda
12bn – Public Sector Housing Financing Board (LPPSA)
4bn – PR1MA
——
60bn Total statutory bodies
——

5bn – 1MDB
6bn – Bank Pembangunan
3bn – SME Bank
42bn – Danainfra
9bn – Govco
6bn – Jambatan Kedua Sdn Bhd
13bn – Water Management
27bn – Prasarana
1bn – Sarawak Hidro
4bn – SRC International
5bn – Turus Pesawat
14bn – Malaysia Rail-ECRL project
3bn – Suri Stratejik Energy Resources
1bn – MKD Kencana

——
133bn – Total companies
——

199bn – Total federal government guarantees
——

(These are figures rounded up to the nearest billion. There are a few other firms with less than RM1bn debt. All figures extracted from the latest edition of The Edge.)

Now, the government will only need to fork out funds if these debts cannot be paid. After all, that is what a guarantee is. And that is why, in financial statements, contingent liabilities are not included in a firm’s balance sheet. Instead, they are shown as just notes to the financial statements – something for analysts to bear in mind, in case things go wrong.

So, have all these debts guaranteed by the federal government really gone bad? In particular:

• RM40bn debt arising from student loans? Is all this debt really irrecoverable?
• RM6bn debt from the second bridge. What about future toll collections from the second bridge? (This is another reason why the toll on the first Penang Bridge cannot be abolished; otherwise, who will use the second bridge)
• We need clarification on the Danainfra debt of RM42bn.
• RM13bn water management firm debt – is this not backed by water assets and long-term lease payments receivable from state water operators?
• RM12bn public sector housing and RM4bn PR1MA – are there no assets to back up this debt? Totally bad?

If it is true that the federal government has to service some of this RM199bn debt, does it mean that the entire RM199bn should be deemed bad? Or just a portion of it, until such time as these entities are able to continue repaying the remainder of their debt – in which case, should only some of this debt be included in the overall figure?

That is why all these debts need deeper analysis, one by one, to establish our real total debt figure.

Similarly for the lease payments of RM201bn. Are these all debts? Or long-term lease payments? We need a breakdown for this.

Perhaps this is a good lesson for the new federal government not to indulge in fancy public-private partnerships, swap deals and creative financial arrangements, which could end up overstating, understating or masking the real debt figure. Stick to the basics and don’t get too clever. We saw what that did to the Najib administration, which of course had a lot of stuff to hide.

It is also good that the government is reviewing and scrapping certain mega projects that we can ill-afford at this time such as the RM40bn MRT3 project and the KL-Singapore high-speed train project. (Perhaps it is time to look at how we can upgrade the existing double-tracking line from Padang Besar to Gemas and extend it to JB, pronto.)

So it is also time to review SRS Consortium’s controversial RM46bn shopping list of expensive transport proposals for Penang (including the tunnel project that was quietly slipped into the Penang transport masterplan). More on this soon.

Such a review of exorbitant mega projects is all the more critical given fears of a brewing contagion in emerging markets.

A friend who is visiting Singapore told me economists there are complaining they are unable to have a logical discussion with their Malaysian counterparts as “their heads are still in the clouds”.