The Phantom of the Pakatan Opera
Firstly, Finance Minister Lim Guan Eng (LGE) has confirmed that the official Federal government debt is RM686.8 billion, or 50.8% of GDP – which was what was reported by the previous BN Govt. This figure is exactly how the whole world measures its debt.
Secondly, LGE adds on Government guarantees of RM199.1 billion, or 14.6% of GDP.
He says this comprises of Danainfra Nasional Bhd (RM42.2 billion), Govco Holdings Bhd (RM8.8 billion), Prasarana Malaysia Bhd (RM26.6 billion), Malaysia Rail-link Sdn Bhd (RM14.5 billion) as well as an estimated RM38 billion for 1MDB.
Let’s take a closer look. DanaInfra and Prasarana are for public transportation projects where the bulk of the debt are for the LRT1 and LRT2 extensions as well as the MRT1 and MRT2 projects. It also includes debt that was incurred when bailing out the original LRT1, LRT2, Monorail and Intrakota when Tun M was the PM those days.
Public transportation projects do not make money but itself but it is a necessary investment for the public good where much of the benefits are not captured in the projects itself – for example, increased productivity, reduced traffic congestion, reduced cost of travel for passengers, increase in property value, reduced pollution and greenhouse gases were estimated by Prasraana to be a RM17 billion benefit to the economy for the year 2017.
Public transportation projects are very long term investments in nature. Tunnels and tracks built can last more than 100 years and does not reduce in value. The London underground are still using the same tracks and tunnel built 150 years ago.
The bond issues for DanaInfra and Prasarana are as long as 30 years. The Malaysia Rail-Link (MRL) debt is for the ECRL and is also due only in 20 years time.
As Prasarana and MRT are continually revenue-generating, there is no immediate danger of the debt being called. In fact, it is common practise that such bonds are rolled-over (ie new debt issued to replace old debt) when the bond is due for payment as long as the interest cost is serviced.
So, there is no danger of any of these transporattion debt causing Malaysia to go bankrupt any time soon – not for a hundred years.
Similarly, the Govco and 1MDB debts are secured by assets that the govt can sell should there be a need for the debt to be repaid. Govco is a restructuring vehicle of the company and was used to provide the soft loan to Proton but in return, Proton’s owner DRB-Hicom pledged property assets that are 1.2 times the amount that it borrowed. On a similar note, 1MDB also has property assets that the govt can sell to pay off its debt.
Again, no danger here as all secured by valuable assets that can be quickly sold.
Of note is that there is also a few other contingent liabilities that LGE left out. For example, PTPTN and its RM50 billion debt or EPF’s RM800 billion in deposits which are also guaranteed by the government? Why doesn’t he include this? Because it would break the nice storyline of “RM1 trillion debt”.
Finally, LGE added another RM201.4 billion (14.9% of GDP) which he says are lease payments for the construction and maintenance of schools, hostels, roads, police stations, hospitals, etc.
As any accountant can tell you, lease payments are operational expenses and not debt per se. Don’t tell me that the govt intends to close down schools, hostels, roads, police stations, hospitals, etc?
When you rent a house, do you consider your monthly rental as debt or as your usual monthly expense?
So, there you have it. Our official govt-deb-to-GDP ratio is still a manageable 50.8%.
But even if you take LGE’s scarily inflated debt to GDP figure of 80.3%, it is still less than the 103.4% official debt to GDP figure which was reached under Tun Mahathir before when he more than doubled our govt debt in just 5 years.
We didn’t go bankrupt at 103.4% debt-to-GDP when Tun M was first the Prime Minister so how are we expected to go bankrupt when the ratio is just 50.8% or even 80.3% when Tun M is PM again?
So, why did LGE and the PH Govt inflate the debt to scare the public?
Because it makes political sense even though it scares away investors and is negative to our economy.
What can be better than using this story (along with the Tabung) to say how bad BN was before and because of this, PH cannot fully deliver its manifesto?
It’s a convenient way to blame someone while they are down and a convenient excuse to use if they themselves cannot deliver.
One stone, two birds. The economy be damned as long it is a good political move for them.
Source: The Phantom of the Pakatan Opera