MP SPEAKS In the Budget for 2015 announced today, Prime Minister Najib Abdul Razak boasted of a continued decline in the federal government’s budget deficit from 3.5 percent in the current year to 3 percent for next year. 

In absolute terms, the shortfall in the government’s expenditure is expected to decline from RM37.3 billion to RM35.7 billion from 2014 to 2015.

While it was disappointing that the Government has postponed the zero deficit target from “after 2015” – announced in 2012 – to the new target year 2020, what is more worrying is the shenanigans that are happening behind these pretty numbers.

This seemingly healthier figure masks the fact that much of the Government-related expenditure today are actually carried out outside the “framework” of the budget. 

This means that the Government have found innovative accounting loopholes to continue big-spending and racking up billions of ringgit in additional debt, without jeopardising the much-studied figures like the official budget deficit percentage.

The clearest indicator of such expenditure is the level of the government’s “contingent liability” which is tucked away in a remote corner of the economic report. 

The figure essentially refers to hidden debt, which is not part of the official federal government debt figure, but are guaranteed by the federal government.

Contingent liability goes up

As of June 2014, the federal government debt has increased to RM568.9 billion from RM539.9 billion at the end of December 2013. 

The latest figure works out to 52.8 percent of Malaysia’s Gross Domestic Product (GDP), a shade below the legal limit of 55 percent. 

While this figure is itself a concern, what is more worrying is the contingent liability figure which has increased more significantly from RM84.3 billion in 2009 (when Najib became the prime minister) to RM157.5 billion as of December 2013, or an increase of 86.8 percent over the past 5 years. 

The figure is expected to increase further in 2014 and 2015 due to the numerous massive infrastructure projects carried out by state-owned corporations such as the MRT Corp and Syarikat Prasarana Negara Bhd. 

In 2013, the federal government guaranteed RM6.5 billion for the MRT construction, an increase of RM4.1 billion from RM2.4 billion in 2012. 

This figure is expected to increase much further this year as the ongoing first phase of the MRT project alone will cost in excess of RM22 billion.

The prime minister has also announced in his budget speech the launching of MRT Phase 2 from Selayang to Putrajaya costing RM23 billion.

Off the mark from reality

The substantial increase to our contingent liabilities relative to the budget deficit highlights the extent to which our official budget deficit percentage is off the mark from the real deficits in our government expenditure.

The above contingent liability figure is also an under-representation of our real hidden debts because much of these debts, while not explicitly guaranteed by the federal government, are implicitly guaranteed.

1Malaysia Development Berhad (1MDB), for example, a wholly-owned investment corporation by the Finance Ministry (MoF), has accumulated debts in excess of RM36 billion over just five years. 

Out of this amount, only RM5 billion is officially guaranteed by the federal government. 

However, it is implicitly understood by financial institutions that in the event of a default, the entire amount will be bailed out by the federal government due to MoF ownership. 

This is similar to the Port Klang Free Zone scandal in which the government was forced to bail out the project with RM4.6 billion, despite no such official guarantee.

It is disappointing that given the seriousness of the persistent deficits and growing federal government debt, the prime minister has failed to address these critical concerns in his 2015 Budget speech. 

1MDB was not even mentioned in the Budget.

The unchecked expenditure via off-balance-sheet government spending, which belies the benign official budget deficit, can have serious negative implications on our country’s financial system. 

The impact can certainly be devastating in the event of a negative external shock to our financial systems.

TONY PUA is the Member of Parliament for Petaling Jaya Utara.