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Saturday, May 26, 2018

Malaysia's RM1.09 trillion debt, 80.3% of GDP demystified

Analysts say new government needs to quickly introduce measures to reduce the country’s liabilities


ASSUMING the government repays its debt by RM1mil a day, it would take Malaysia 2,979 years to pay off its debts.

Malaysia’s new Prime Minister Tun Dr Mahathir Mohamad revealed on May 21 that the country’s debt level has breached the RM1 trillion mark during his first address to civil servants.

The statement, which was nothing less than alarming, has since raised concerns among Malaysians on the country’s fiscal sustainability. Bursa Malaysia was hammered for four consecutive days, as investors frantically sold off their stakes.

The benchmark FBM KLCI saw the biggest year-to-date decline on May 23, tumbling by 40.78 points or 2.21% to 1,804.25 points.

Total gains made by the index this year were all wiped out in just four days following Dr Mahathir’s announcement.

The ringgit, which has weakened since early April, continues to decline as concerns on public debt loom.

Big impact: The benchmark FBM KLCI saw the biggest year-to-date decline on May 23, tumbling by 40.78 points or 2.21 to 1,804.25 points.


An economist tells StarBizWeek that Dr Mahathir’s public announcement on the high debt figure is “not helping”, as anxiety intensifies among Malaysians and in the market.

For context, Malaysia’s real gross domestic product (GDP), an indicator of the size of economy, was RM1.35 trillion as at end-2017 – close to the said RM1 trillion debt amount.

Meanwhile, the federal government’s revenue this year is projected at RM239.9bil as per Budget 2018.

Several critics, including Umno Youth deputy chief Khairul Azwan Harun, claim that Dr Mahathir’s statement on the federal government debt was exaggerated and far-fetched.

AmBank Group chief economist Anthony Dass says that although the current scenario shows some signs of similarities to the 1997/98 Asian Financial Crisis, he would not conclude that the current fiscal condition is somewhat similar to the downturn 20 years ago.

At a glance, the “RM1 trillion debt” remark stands in sharp contrast to Bank Negara’s debt tally of RM686.8bil as at end-2017, putting the federal government’s debt-to-GDP ratio at 50.8% – lower than the 55% self-imposed debt limit.

Dr Mahathir refutes this, saying that the national debt-to-GDP ratio has shot up to 65.4%. A day after his announcement, Finance Minister Lim Guan Eng put the ratio at 80.3% of GDP, or about RM1.09 trillion in debt as at end-2017.

Why is there such an obvious difference in the debt amount now that a new government is in place?

Here is where “creative accounting” comes into play.

The lower official debt figures released under the previous Barisan Nasional government had excluded the contingent liabilities and several other major “hidden” debts from the direct liabilities, which amounted to RM686.8bil as at end-2017.

Contingent liabilities, which were released separately prior to this, basically refer to government-guaranteed debt and do not appear on the country’s balance sheet. Examples of contingent liabilities are the loans under the National Higher Education Fund Corp (PTPTN) and certain debt of the controversial 1Malaysia Development Bhd (1MDB).

As at end-2017, Malaysia’s contingent liabilities stood at RM238bil.

Funding for several government mega-projects such as the mass rapid transit (MRT) projects was also categorised as contingent liabilities. The MRT lines were funded by DanaInfra Nasional Bhd, the government’s special funding vehicle for infrastructure projects.

DanaInfra raises money from the market through sukuk, which are, in turn, guaranteed by the government. The guaranteed amount is classified as a contingent liability.

In the event of less-than-expected revenue collection from the MRT lines moving forward, the government will have to intervene to repay the sukuk holders.

The current ruling government believes that RM199.1bil out of the RM238bil contingent liabilities deserves attention to ensure proper debt repayment.

The 1MDB alone comes with an estimated contingent liability of RM38bil.

High figure: The 1MDB alone comes with an estimated contingent liability of RM38bil. — Reuters
High figure: The 1MDB alone comes with an estimated contingent liability of RM38bil. — Reuters 

On the remaining government guarantees, the Finance Ministry says they have been provided by “entities which are able to service their debts such as Khazanah Nasional Bhd, Tenaga Nasional Bhd and MIDF”.

Apart from contingent liabilities, there are several major “hidden” debts, which do not fall under both direct liabilities and contingent liabilities.

An economist with a leading investment bank in Malaysia calls the debts “off-off-balance sheet” government debt.

These are the future commitments of the federal government to make lease payments for public-private partnership projects such as schools, roads and hospitals.

Examples of such debt would include the debt of Pembinaan PFI Sdn Bhd, a company owned by the Finance Ministry. Pembinaan PFI was established in 2006 under the previous Tun Abdullah Ahmad Badawi administration to source financing to undertake government construction projects.

According to its latest available financial statement for 2014, Pembinaan PFI held a total debt of RM28.75bil.

Interestingly, at end-2012, the company’s debt was the third highest among all government-owned entities, just behind Petronas (RM152bil) and Khazanah Nasional (RM69bil).

With no independently generated revenue, the interest payments on Pembinaan PFI’s debts would eventually come from the federal government’s coffers.

The Finance Ministry puts the debt under this third category at RM201.4bil.

All together, Malaysia’s debt and liabilities are said to amount to a total of RM1.09 trillion.

Actually, for those in the loop, the different debt categories and total liabilities are not something new.

Lawmakers from Pakatan Harapan, particularly current Bangi MP Ong Kian Ming, have alerted the authorities about the debt figures over that past few years.

Ong is also currently the special officer to the Finance Minister. The layman might ask, what was the former government’s relevance of classifying these debts into separate off-balance sheet items?

The motive is to make sure the national balance sheet looks healthy and lean.

Economists’ take

Many have questioned the new government’s move to lump contingent liabilities and debt obligations with the direct liabilities. It should be noted that as per the standard procedure of credit rating agencies, only the direct liabilities are taken into the calculation of the debt-to-GDP ratio.

In a StarBiz report this year, Moody’s Investors Service sovereign risk group assistant vice-president Anushka Shah said that by carving out certain expenditures off its budget, the government would be able to optimise its expenditure profile and minimise the associated impacts from its spending.

However, she pointed out that Malaysia’s federal government debt burden remains elevated at 51%, relatively higher than the median of other A-rated sovereign states at 41%.

On the country’s contingent liabilities, Anushka described them as “low-risk” at the current level, and added that the government has been prudent and careful in managing the guaranteed debts.

“We find that the government has adopted rigorous selection criteria when it grants the guarantees to the respective entities.

“The companies which have received guarantees from the government are relatively healthy and have strong balance sheet positions,” she said.

Ever since Dr Mahathir shocked the market with the “RM1 trillion debt” remark, the focus among Malaysians has largely centred on the nominal value of the debt.

A greater emphasis should instead be given on “debt sustainability”, which basically refers to the growth of debt against the growth of the economy.

Economists who spoke to StarBizWeek have mixed opinions on the level of seriousness of Malaysia’s public debt problem.

Suhaimi: Malaysia’s debt has risen faster than economic growth.
Suhaimi: Malaysia’s debt has risen faster
than economic growth. 
According to Maybank group chief economist Suhaimi Ilias, Malaysia’s debt has risen faster than economic growth over the last 10 years.


“In the past decade, officially published government debt and government-guaranteed debt have risen by 10% and 14.5% per annum, respectively, faster than the nominal GDP growth of 7% per annum, which raises valid sustainability risk.“On the government’s debt service costs relative to the operating expenditure, the ratio was 12.7% as at end-2017 and based on Budget 2018 is projected to rise to 13.2%. It has been rising steadily from 9.5% in 2012.

“There is a 15% cap on this under the administrative fiscal rule, while the 11th Malaysia Plan target is to lower the ratio to 9.8% in 2020. The government is looking at the debt issue from this sustainability perspective in our opinion,” he says.


Lee: Malaysia’s rising public debt level warrants close monitoring.
Lee: Malaysia’s rising public debt level
warrants close monitoring.  

Meanwhile, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says that various indicators of debt burden suggest that Malaysia’s rising public debt level warrants close monitoring to contain the long-term risks of fiscal and debt sustainability.

“High levels of government debt over a sustained period will have economic and financial ramifications over the longer term. Rising public debt could crowd out private capital formation and, therefore, productivity growth.

“This occurs through the competition for domestic liquidity, higher interest rates, a shifting of resources away from the private sector or investment in low-impact projects. This situation is made worse if the government wastes borrowed money on unnecessary projects,” he tells StarBizWeek.

In contrast to Suhaimi and Lee, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain points out that Malaysia’s debt sustainability scenario is yet to be a cause for concern.


Manokaran: Debt sustainability scenario is yet to be a cause for concern.
Manokaran: Debt sustainability scenario is
yet to be a cause for concern.
This is because debt repayments are made on an annual basis as opposed to a colossal one-off payment of RM1 trillion.

“Malaysia’s economic growth of above 5% is sufficient to cover government debt. As long as the economy is growing while the government is able to service the debt charges, it is not really that alarming.

“Even in the United States, the government debt-to-GDP level exceeds 100% at US$21 trillion against the real GDP of US$18.57 trillion,” he says.

Manokaran adds that while total government debt has risen over the years, Malaysia’s annual debt growth rate has been growing slower in recent years.

Deleveraging Malaysia

The government must now move fast to introduce measures to reduce and manage the country’s debt levels. This is highly crucial in assuring creditors and investors that the country’s fiscal health remains uncompromised.

Given the fact that the world is currently at the tail-end of the 10-year economic cycle, it is timely for the government to focus on its ability to fulfil its debt obligations.

In the event of an economic turmoil, a heavily-indebted country would be adversely affected.

Lim has emphasised the federal government’s commitment to honour all of the country’s debts.

“This new government puts the interest of the people first, and hence, it is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces at a later date,” he said in a statement earlier.

Economists believe that the government must strictly embark on reforming the national expenditure in carrying out debt consolidation.

This includes cutting down on unnecessary expenditure, plugging leakages in the federal government’s finances and containing public-sector wage bills.

Lee has recommended an overhaul the current pension system, considering the unsustainable current trend.

“On revenue reform, the design of tax policy should be fair and equitable in order to be sustainable.

“The push for a wide and investment-friendly reform to boost potential growth should be expedited, as strong investment and economic growth has a huge effect on enhancing revenue growth and reducing public debt.

“On budget planning and development, an oversight body needs to be set up to ensure better fiscal rules, budgetary processes and closer fiscal monitoring to ensure fiscal discipline,” says Lee.

Manokaran says the new government should consider expenditure cuts through the privatisation and reformation of the numerous government-linked corporations, as well as the reduction in size and budget allocation of the Prime Minister’s Office.

On the national mega-infrastructure projects, Manokaran and Suhaimi say that the renegotiation and review of such projects will be vital in managing future debt growth.

Time will tell whether the government can live up to its promise of reducing the public debt dilemma. Pakatan must now balance its “populist” electoral promises and stellar fiscal management policies.

As for now, the government deserves to be complimented for calling a spade a spade, acknowledging the problem at hand.

By ganeshwaran kana The Star


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Thursday, May 24, 2018

Robert Quok, Richest Malaysian Back Home

All ears: Bai Tian listening to Kuok during their meeting

https://youtu.be/CSUH-WbR2ek


PETALING JAYA: The return of billionaire Robert Kuok to Malaysia sends an important message that the Government is getting advice from highly-respected experts, a move that could instil confidence and optimism among the business community and the public, say economists.

Prof Dr Yeah Kim Leng said it was reassuring that the Government is listening to the views of a tycoon who has a thorough understanding of the history, as well as the economic and business landscapes of Malaysia and the region.

“We now know that whatever new policies or changes introduced would have been passed through or reviewed by Kuok and the panel of experts.

“We are in safe hands. We are able to secure the best advice. It is comforting and reassuring,” the Sunway University Business School economics professor said.

Kuok, 94, was named as a member of the Council of Eminent Persons (CEP) by Prime Minister Tun Dr Mahathir Mohamad to help shape policies and programmes to achieve Pakatan Harapan’s 100-day promises.

Headed by former Finance Minister Tun Daim Zainuddin, the CEP also includes former Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, former Petronas CEO Tan Sri Hassan Marican and renowned economist Prof Jomo Kwame Sundaram.

Kuok, who resides in Hong Kong, returned to Malaysia to attend his first CEP meeting on Tuesday.

Speaking to reporters later, he urged Malaysians to trust the council.

Yesterday, a video of Kuok meeting Dr Mahathir was uploaded on Kelab Che Det’s Facebook page.

He was seen saluting Dr Mahathir, saying: “I salute you. You saved the country.”

Socio-Economic Research Centre executive director Lee Heng Guie said Kuok and the other eminent persons conveyed a message that the Government was bent on making Malaysia better, more competitive and credible.

“Kuok is a prominent and respected entrepreneur. We can tap into his vast experiences in the corporate world. This will benefit Malaysia,” he said.

Lee expected Kuok to give his fair advice to the Government on how to ensure foreign investors would pour in to place Malaysia in the top of the list for investments.

Meanwhile, on the Government’s decision to review projects approved by the previous government – of which a substantial number of projects involved Chinese private and government-linked entities – Dr Yeah said Kuok could serve as the bridge between both countries.

“Some of the mega projects will likely see a need for a third party to intervene. Kuok will be an excellent intermediary.

“Investors will be more comforted if we have a intermediary that is able to facilitate discussion or smoothen out frictions if there is any,” he said, adding that this was to ensure the ties remained strong and not derailed should there be any hard decisions that needed to be taken.

Separately, China’s ambassador to Malaysia Bai Tian met with Kuok yesterday.

In an official statement, Bai spoke highly of the 94-year-old billionaire’s contributions to the development of Malaysia and the progress of China-Malaysia relations.

“He expects that Kuok would continue to contribute to the future development of China-Malaysia cooperation,” the statement said.

During the meeting, both of them agreed that friendly cooperation between China and Malaysia is in the fundamental interests of the two countries and their people.

“They believe that, as an important country along the 21st century maritime silk road under the Belt and Road Initiative, Malaysia could further benefit from mutually-beneficial and win-win cooperation with China.

“They recall the sound development of bilateral relations during Tun Dr Mahathir Mohamad’s last service as Prime Minister, and are both confident that during the term of the new government, China-Malaysia relations will achieve greater progress,” it added. - The Star

Related: 


Robert Kuok to arrive in Malaysia next week

Robert Kuok to arrive in Malaysia next week

 

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Wednesday, May 23, 2018

RM7bil to bail out 1MDB, CEO Arul Kanda utterly dishonest & untrustworthy said Finance Minister

https://youtu.be/Joi3euZ6DIU
https://youtu.be/_drCqrquWPM

PUTRAJAYA: On top of paying RM6.98bil to bail out 1Malaysia Development Bhd (1MDB), the Government is now facing the prospect of forking out an additional RM953mil to service the company’s debts by November.

“I have been informed that besides the RM142.75mil due at the end of this month, another RM810.21mil worth of interest is due between the months of September and November in 2018,” Finance Minister Lim Guan Eng told reporters after being briefed by ministry officers.

Lim, who was shocked at the revelation, added that the ministry had been bailing out 1MDB by servicing its debts since April 2017, which included payments for International Petroleum Investment Corp’s (IPIC) settlement agreement amounting to RM5.05bil.

“This confirms the public suspicion that 1MDB had essentially deceived Malaysians by claiming that hit had paid via ‘successful rationalisation exercise’.

“It has been the ministry that has bailed out 1MDB,” he said.

He also said the previous government had conducted an exercise of deception with regard to 1MDB and even misrepresented the financial situation to Parliament.

Lim said 1MDB’s chief executive officer Arul Kanda Kandasamy, and directors Datuk Kamal Mohd Ali and Datuk Norazman Ayob will be grilled to determine the company’s state of affairs and its ability to service its debts.

He said officers from the ministry would conduct a detailed study on 1MDB’s debts and liabilities aimed at resolving the “crisis created by the scandal”.

“We will also submit our findings to the 1MDB task force formed by the Prime Minister,” Lim said.

Asked what was the full extent of 1MDB’s debts and liabilities, Lim said this would only be known with full access to files and accounts which had been previously barred or blocked to auditors.

He added 1MDB had contributed to the nation’s debts. - The Star

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https://youtu.be/fCZj0DuDNUk Robert Kuok attends CEP meeting Najib arrives at MACC HQ to have his statement recorded ...
Dr Mahathir moves swiftly to inject confidence and stability into the market WHEN the results of the 14th general election were final...
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Market impact: The reaction of investors following the past two GEs is an example of how investors value certainty and how Bursa will b...


Najib and Mahathir face off in fierce Malaysian election:   https://news.cgtn.com/news/

New MACC chief breaks down in recounting what he went through (full story)

https://youtu.be/ZKoNfVcq5EQ

PUTRAJAYA: Newly appointed Malaysian Anti-Corruption Commission (MACC) chief commissioner Datuk Seri Mohd Shukri Abdull broke down when he recounted his time running away from Malaysian authorities to the United States.

This came in 2015 after his former boss Tan Sri Abu Kassim Mohamed at the MACC decided to indict former prime minister Datuk Seri Najib Tun Razak over the RM2.6bil that was found in his personal bank account.

Shukri said that the commission had well-founded basis to initiate an investigation into SRC International, a subsidiary of 1Malaysia Development Berhad (1MDB), which had been accused of transferring millions of ringgit into Najib’s private account.

According to Shukri, Abu Kassim asked him whether he was ready for the consequences of indicting a sitting prime minister, which could have led to their dismissal.


“I said ‘no problem’, because I was willing to do it for the country,” Shukri told a press conference at the MACC headquarters here on Tuesday.

However, on the day in July 2015 when Abu Kassim was going to do indict Najib, former Attorney-General Gani Patail was removed from his position.

The announcement came along with the reshuffling of the Cabinet that also saw the sacking of the Deputy Prime Minister Tan Sri Muhyiddin Yassin and Rural and Regional Development Minister Datuk Seri Mohd Shafie Apdal, who had also raised questions about 1MDB.

With all these sackings foremost in his mind, Shukri left for Washington on July 31, 2015, to bring up the 1MDB issue with US authorities.

Wary, he released misleading information that he was headed to Saudi Arabia, and he heard that people were waiting to arrest him in Jeddah.

Shukri said that before he left for Washington, he faced tremendous pressure.

“The witnesses I interviewed had been taken away.

“I was threatened to be fired, was told to retire early and was even threatened to be sent to the training division,” he said.

The trip to Washington had its own drama.

“I noticed someone was following me (in Washington). My team in the United States took pictures of the man who was following me.

“I sent the pictures to MACC deputy chief commissioner (operations) Datuk Azam Baki, and asked him to send it to the then Inspector-General Police,” he said, adding that he made it clear that he knew that men were following him.

Shukri said he felt unsafe in Washington and decided to go to New York, where he met up with a friend who worked in the New York Police Department (NYPD).

“I got protection from the NYPD and they provided me with three bodyguards,” he said.

Shukri said he then returned to Washington.

It was in recounting this episode during his Tuesday press conference that Shukri broke down in tears, saying he felt guilty when he was told that his men who were working for him had been incarcerated.

“I felt helpless and was frustrated for failing to protect my men.

“I cried in front of the mat salleh (Caucasians). My men and I had been accused of conspiring to topple the (Barisan Nasional) government,” he said.

Shukri finally retired in August 2016 at the age of 56. During his farewell speech, he hit out at an "individual" who had alleged that he was involved in a conspiracy to topple Najib and his administration.

Abu Kassim, who was appointed MACC chief in 2010, was also replaced by Tan Sri Dzulkifli Ahmad in 2016.

Shukri served at the anti-graft body for 32 years before he retired. He first joined the then Anti-Corruption Agency in 1984 as investigations officer after graduating from Universiti Kebangsaan Malay­sia.

He rose up the ranks and served as ACA director in Perlis, Kelantan and Sabah.

Upon his return to the headquarters in July 2006, he was promoted to the post of assistant investigations director and two months later, was promoted yet again to be the director of investigations.

In 2010, he took on the position of MACC deputy chief commissioner (operations), which he held till his retirement.

Pakatan Harapan appointed Shukri to head the MACC when it took over Putrajaya after GE14.

He clocked in for work at 10.29am on Monday (May 21), having received his appointment letter just about an hour before reporting for duty.

This story was amended to correct some dates. By ashley tang The Star


Back in the spotlight: Reporters swarming around Abu Talib at Menara Ilham in Kuala Lumpur.Related stories:

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Emotional 'revelations' could prejudice investigations, say... 

 

Shukri apologised and I forgive him, says Dzulkifli - Nation 

 

RM130mil in cash counted - Nation

Finally over: Bukit Aman Commercial Crime Investigation Department (CCID) officers loading the seized bags and containers at its headquarters before transporting them to Bank Negara for safekeeping. They have completed the painstaking task of counting the cash seized from Pavilion Residences last week. — Bernama

MACC chief: 'Questionable' Saudi prince failed to show proof of RM2.6bil donation

Shukri aims to put things right after two years in wilderness and ...




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Tuesday, May 22, 2018

Huge landslide in Tg Bungah hill

Disaster zone: An aerial view of the recent landslide in Tanjung Bungah, Penang.
An aerial view of the brown water flowing into the sea from Sungai Kelian.


GEORGE TOWN: Nobody knew a natural disaster was waiting to happen until Sungai Kelian in Tanjung Bungah turned brown and silty.

The sudden profusion of laterite mud flowing out to sea was caused by a landslide even bigger than the one that killed 11 people at a Tanjung Bungah construction site last year.

But it was so far uphill – 231m above sea level – that Penang Island City Council (MBPP) had to use a drone to find it.

As it was a natural landslide, residents are now worried about the fragility of slopes in the Tanjung Bungah hill range and want tighter scrutiny on the many development projects slated for their neighbourhood all the way to Batu Ferringhi.


MBPP issued a statement on Sunday after discovering the landslide on Bukit Batu Ferringhi, in the forest reserve about 1.5km uphill of a disused Penang Water Supply Corporation (PBAPP) intake station.

PBAPP chief executive officer Datuk Jaseni Maidinsa clarified that the station had not been in use since 1999, after the Teluk Bahang Dam was completed.

An MBPP engineer said the landslide was about 40m long and 20m wide, but geo-technical experts were unable to reach the site to determine what happened because there are no jungle trails to reach it.

A group called Nelayan Tanjung Tokong shared a video on Facebook last Thursday, showing the russet brown water flowing into the sea from Sungai Kelian and expressed concern.

Tanjung Bungah Residents Asso­ciation chairman Meenakshi Ra­­man said it was worrying because the landslide happened without any human disturbance.

“It shows the hills in the vicinity are ecologically fragile, and we don’t want any untoward incidents to happen again.

“We hope the authorities will tell us what is being done to prevent further landslides,” she said yesterday.

Former Tanjung Bungah assemblyman Teh Yee Cheu said he knew the area well and believed that the landslide took place near the source of Sungai Kelian.

“I have always stressed on how sensitive the hill slopes here are. There are many underground springs in the hills,” he said.

State Works, Utilities and Flood Mitigation Committee chairman Zairil Khir Johari said the landslide happened in the middle of a forest reserve and experts need time to study the slope to understand how it gave way.

He gave an assurance that the mud washing down the river would clear up in due course without long-term damage.

Zairil also stressed that no deve­lopment had been approved near the landslide area.

“The state government’s guidelines on hill slope development are tighter than those used by the Federal Government. We will not approve developments without pro­per compliance,” he added.

Penang Drainage and Irrigation Department director Mohd Azmin Hussin said that it would be difficult to transport machinery to the source of the landslide for mitigation works.

“There are no access roads and the team will have to hike to the site,” he said. - The Star

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'Bleeding' landslide worries residents - Nation 

 

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