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COMMENTARY | After the radical change of government with the new Pakatan Harapan coalition in place, many observers are paying intense and critical attention to deepening the true nature and size of Malaysia's public debt obligations. Greater transparency is required
The former BN administration, under former Prime Minister Najib Abdul Razak, had been less than transparent about the actual size of the government's responsibilities.
How was this accomplished? There was a three-pronged approach. First, the annual budgets of the federal government (tabled in Parliament) have, for most years, had a modest deficit; these deficits were financed by borrowing in ringgit loans.
While direct borrowings from foreign sources were minimal, foreign hedge funds and other investors held significant holdings in paper ringgit. These holders were attracted in part by the relatively higher yields that Malaysia offered at a time when global interest rates were at historically low levels. According to this approach, the federal government's total debt was maintained at just over 50% of GDP
Second, much of the funding for development projects came from loans that were never in the federal government's budget. ; these were off-budget loans and were obtained by companies and entities owned or controlled by the State.
These loans appear, for the most part, to have been guaranteed by the federal government. Although it is government liabilities, they have not been fully disclosed. As a result, Parliament and the public have been left in the dark; off-budget borrowing has hidden the size of the debt from regulators; and virtual outsourcing of development projects offered the opportunity to ignore supply rules, such as the need for competing auctions.
Third, Bank Negara's debt data was partial and lacked clarity or semblance of full disclosure. Significant loans related to the Kuala Lumpur-Singapore high-speed rail link and the East Coast Railway projects were not mentioned in the Government's Economic Report nor in the budget submission.
In the end of 2016, the consolidated public sector debt amounted to 901 billion ringgit. However, this figure has not been highlighted; Ministerial declarations have focused on the lower amount of the federal government's debt of RM 648 billion.
One may wonder why these BN administration practices never appeared …
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