What does Greece have in common with Malaysia? The 2004 European football champions just got beaten 2-1 by the “fishermen, road constructors and carpenters” from the Faroe Islands, minnows in world football.
Malaysian football has also crashed down to earth with a thud. In the 1970s, Malaysia used to vie with South Korea and Iran for Asian football supremacy. Just a few years ago (2011), Malaysia were crowned Sea Games football gold medalist. These days, they are struggling against the likes of Timor Leste. And only days ago, they received a six-of-the best drubbing (0-6) at the hands of Palestine, not exactly a football superpower!
On the economic front, Greece is staring at an exit from the European Union while Malaysia is waiting with bated breath for the latest rating from Fitch.
The Malaysian federal government’s debt position should be cause for concern.
We keep getting told that the Malaysian federal government’s debt to GDP ratio is below 55 per cent. But is this debt ratio meaningful when it excludes growing government debt guarantees, off-balance sheet obligations and perhaps debts owed by GLCs?
Let’s look at our government debt. The figures are from The Edge (15-21 June 2015).
Government debt (end-March 2015) RM597bn (53.4 per cent of GDP)
Government debt (end-March 2012) RM471bn
Government debt guarantees (end-March 2015) RM173bn (does this include debts of government-controlled GLCs?)
Government debt guarantees (end-March 2012) RM130bn
Total public debt and debt guarantees RM770bn (69.6 per cent of 2014 GDP or 65.9 per cent of projected 2015 GDP of RM1.2tn)
On 9 June, Parliament was told that Putrajaya has to absorb off-balance sheet obligations or payments of RM4.8bn-RM11.6bn a year for nine companies owned by the Finance Ministry (including Pembinaan PFI Sdn Bhd and Pembinaan BLT Sdn Bhd. What exactly is this? Interest payments or debt repayments? Why should the federal government be paying this instead of the firms involved – unless these firms are running huge losses?
And what about the consolidated public sector financial position, whose deficits have been rising over the last three years?
And where do the 1MDB government guarantees fit into all this?
Oh, by the way, Greece’s government debt to GDP is widely believed to be 177 per cent (which means we are nowhere close to Greece, if that’s any comfort) – but some actually believe it to be 68 per cent if a different accounting system is used (which may not be so comfortable after all).
All said, our 55 per cent threshold looks rather meaningless when we are not getting the full picture of the government’s exposure to all potential debt. Elsewhere, household debt is now 86 per cent of GDP, corporate debt 95 per cent of GDP, and external debt 69 per cent, which is not great news either.