Fiscal Responsibility Act may require statutory limits on contingent liabilities

The proposed Fiscal Responsibility Act (FRA) may include statutory limits on specific contingent liability instruments such as government guarantees, said the Finance Ministry.

In its 2023 Fiscal Outlook and Federal Government Revenue Estimates report released today, the ministry said a provision requiring the government to publish a fiscal risk statement might also be included in the Act.

“The forthcoming FRA will include clauses that require the government to determine provisions on policy decisions, circumstances and situations that will contribute to the highly probable materialisation of contingent liabilities,” it said.

The ministry said the FRA is intended to support the government in enhancing fiscal risk management - while improving Malaysia’s fiscal policy formulation by international standards and global best practices.

In addition, comprehensive fiscal risk management would enable the government to plan for sufficient fiscal space and prepare for any shocks.

“Unexpected events such as geopolitical crises, the spread of diseases and natural disasters can distort the global trade supply chain, hence, affecting the financial outcome of a country.

“Furthermore, the world economic crisis cycle has shortened year-by-year, limiting time for governments to consolidate their fiscal position in embracing the next cycle of crisis,” it noted.

Therefore, the ministry said the government will steadily pursue the fiscal consolidation path towards strengthening public finances.

It said inflation and higher subsidies expenditure, slower growth outlook, moderated commodity price, the US Federal Reserve’s policy tightening, elevated debt burden and extreme weather conditions were some potential risks identified that may disrupt Malaysia’s fiscal position in the short to long-term.

The ministry noted that continuous risk identification and assessment were being carried out to ensure proper policy responses in mitigating any impact.

Overall, Malaysia’s total debt and liabilities exposure as at end-June 2022 amounted to RM1.42 trillion or 82.9 percent of gross domestic product (GDP), with federal government debt standing at RM1.045 trillion (61 percent).

Malaysia’s committed guarantees stood at RM199.9 billion (11.7 percent), 1Malaysia Development Bhd (1MDB) at RM25.9 billion (1.5 percent) and other liabilities at RM149.6 billion (8.7 percent).

Meanwhile, the total outstanding government guarantees have been moderated to RM307 billion or 17.9 percent of GDP.

The federal government provides government guarantees as a form of financial assistance to government-related entities to execute public-centric infrastructure or strategic projects which contribute to national development and economic enhancement.

The ministry stated that the government guarantees recipient entities remain accountable for repayment obligations while the government serves as a secondary obligor or guarantor.

In the case of 1MDB, its outstanding debt declined to RM25.9 billion as at end-June 2022 following the settlement of its debt obligation in May 2022.

As of end-June 2022, there were 105 public-private partnership projects which required financial allocation from the government with an estimated cash commitment of RM98.4 billion, while the Public Finance Initiative’s outstanding liabilities amounted to RM48.1 billion.

The ministry added that the outstanding liabilities of government construction company PBLT Sdn Bhd were estimated at RM3.2 billion as at end-June 2022.

- Bernama

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