DAP national publicity secretary Tony Pua pointed out that the recent warning call by global ratings agency Fitch Ratings has confirmed that there is a clear attempt by the federal government to hide its debts off the official balance sheet.

NONE Citing the report published by Fitch on Monday, Pua ( left ) urged the federal government to heed the warning on the country's debt levels or face the risk of a “slowly but surely route to a Greek-style financial crisis”.

The report warned that “Malaysia's public finances are a weakness relative to rating peers and offer limited scope for counter-cyclical fiscal stimulus at the current rating level of 'A-'/Stable”.

It added that “while this has not hindered the public sector's capacity to contribute to gross domestic product (GDP), which grew 5.2 percent year-on-year in the third quarter according to Bank Negara Malaysia Friday, the growing provision of guarantees to government-linked borrowers is concerning”.

Pua commented that the report expressed the view that much of the growth was a direct result of higher than desired levels of government consumption and investment.

Higher rate of liabilities increase

More specifically, he said, the government’s expenditure is funded by “greater drawdown of existing federal government guarantees of debt issued by public sector enterprises, and suggests increasing use of quasi-fiscal policy to support economic activity and may apply further pressure on the sovereign credit profile”, according to Fitch's report.

“Hence despite the official government statistics that the federal government debt is 'only' at 53.7 percent of our GDP, the number does not include the sky-rocketing quasi-government debt or our contingent liabilities,” said the Petaling Jaya Utara MP in a statement issued yesterday.

azlan Pua continued to point out that as at December 2011, Malaysia's contingent liabilities have increased by 20.5 percent to RM116.8 billion from RM96.9 billion the previous year.

“However, as reported by Fitch, this figure has increased by another RM23.4 billion or 20 percent to RM140.2 billion as at September 2012. Such debt is now equivalent to 15 percent of GDP compared with just nine percent at end-2008.

“The rate of increase is also much higher than the 10 to 12 percent rate of increase of the official federal government debt over the past give years, signaling a clear attempt by the government to hide its debts off the official balance sheet”.

He stressed that the same view was shared by Fitch, which stated in its report that “the increasing reliance on off-balance sheet funding could potentially call into question the meaningfulness of the 55 percent of GDP federal debt ceiling”.

Pua also quoted CIMB Investment Bank economist Lee Heng Guie who has recently written that the computation of public debt should also include outstanding borrowings guaranteed by the federal government to give a clearer picture of policymakers’ debt dynamics.

Hence Pua called upon the government to reform its outdated accounting practice of “off-balance sheet financing” and recognise fully these hidden debts as the federal government debt commitments.

azlan “This is especially since much of these debts are not financing projects which are commercially viable and hence will ultimately require government repayment at some point in the future, such as the RM24 billion and RM11 billion of debt owed by the National Higher Education Fund Corporation (PTPTN) and Syarikat Prasarana Negara respectively.

“Furthermore, the market is anticipating additional hikes in our contingent liabilities as the government embarks on many mega-projects off its balance sheet – such as the RM50 billion MRT project which has yet to raise the necessary financing, and the RM25 billion Tun Razak Exchange spearheaded by (1Malaysia Development Bhd) 1MDB,” he said.

Without proper accountability, Pua warned, the apparent abuse by the current government in circumventing the legislated 55 percent limit of federal government debt by recklessly issuing debt guarantees to wholly-owned government agencies or government-linked companies, will only lead to Malaysia finding itself trapped in financial quicksand sooner or later.

“Fitch had already in August 2012 warned that 'fiscal trends may eventually lead to some form of negative rating action' and the Barisan Nasional administration must pay heed to its advice to prevent Malaysians from enduring another Greek tragedy,” he added.