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Sakmongkol ak 47

Thursday 22 November 2012

Public Debt: Doing the Number on Us

After 55 years, it is an insult to our intelligence if all we do is to get ourselves corralled into stadiums, halls and fields to participate in huge love fests declaring our fealty to Supreme Leader Kim Il Najib. For a change let us apply our keen minds to investigate whether UMNO and BN have managed this country well. Good management is what drives this country forward but not sloganeering and speechifying.
We have heard ministers and government leaders say they can manage the economy well. When the public complains about rising public debt, our leaders say they are below the 55% debt-gdp ratio. There are no reasons to worry.
Not true, we have every reason to worry. Rising public debt means, all the people bear the risk of taking up the debt. The country is at risk. Lenders will be reluctant to lend to Malaysia and if they do, will do at exorbitant rates.
Sometime in the future, government has to pay debt. It must have revenue to pay off the debts. It can raise revenue, reduce spending or raise taxes. It doesn’t seem to want to reduce spending. Najib likes to spend. He has more than doubled public debt since he took over from Abdullah Badawi. He hasn’t put in plans to raise revenue. Oil and gas are exhaustible resources. Price of commodities is volatile. We are losing our competitive edge in manufacturing. In any case even when the going is good, Najib doesn’t reduce spending and debt.  
So he will raise taxes sometime in the future. It would appear the government doesn’t care about how the rakyat feel because it thinks it can do anything without anyone able to stop them. We have an insensitive government oblivious to the rising awareness of the rakyat. That forms the premise upon which lies the arrogance of this government. It thinks people are stupid.
If the government cannot find sources to increase revenue it will have to raise taxes. Such as GST to widen the net to include those who don’t pay taxes. Only 10% of the working population pays taxes currently. The people of Malaysia bear a potential debt of RM17k per person. So Mr Ministers, we have all the reason to worry. You have not been managing the economy efficiently.
The actual debt by the government or public debt may be hidden from public scrutiny.  As a result, the government crows that it has reduced budget deficit. In 2012 the deficit was 4.5%. In 2013 says the government, the deficit will be only 4%.  Federal government debt is projected to increase by 10% only reaching RM502bn. that is only 53% of GDP.
These figures say the government show, we can manage the economy better than anyone else. The opposition says the PM can only put up a budget not worth the paper on which it is printed. Debt servicing is around 15% of revenue. It’s around 10%.  The opposition will not be able to accomplish what we can do.
That part that is hidden is what worries us. The loan guarantees that the government gave out constitutes what we may call shadow public debt. It has grown tremendously under the stewardship of Najib making him the most spendthrift of all PMs. And there seems to be no restraints. Eventually the hidden public debt may appear in the official government’s balance sheet.
The government hasn’t revealed the extent of the guarantees it gives to debts taken by GLCs and other approved bodies. For example the government may guarantee the loans taken by the developers of the RM 50 billion MRT project. Suppose the loan is defaulted. The creditors go after the guarantors of the loan, i.e. the government. The government then pays for the loan taken. Over a period of one year, from June 2011 to June 2011, this form of loan guarantee rose from RM89bn to RM133bn. it increased by 49%.
Suppose we include these figures into the figures of official public debt. If we include the shadow debt into the official debt, then the debt to GDP is more than 55% allowed. It becomes 68%.
The debt guarantee is also known as contingent liability. It does not become a liability yet, unless there is a call on the guarantee. It is therefore not part of the official public debt. So why should we worry asks the government. The opposition likes to spin bad stories about us.
The response to that is, because the government has not been forthcoming and upfront with the rakyat, we need to inform them that this may be a possible trick from the government.  There is a strong possibility, that the government uses this kind of debt guarantees to bypass the ceiling of the 55% debt-gdp ratio.  If the government does this, then it is deceiving us and we cannot trust this government.
Who are the beneficiaries and recipients of the shadow debts? A host of government entities are taking up the shadow debt. These include entities like Prasarana, 1MDP and Johor Corp which is developing the more than 2000 square kilometers of land in Johor known as Iskandar Region. It’s 5 times the size of Singapore and if the Singaporeans keep gobbling up larger and larger tracts of land there, Iskandar Region may eventually become an annexure of The Republic of Singapore.
The Klang Vallley MRT project which is estimated to cost around RM50bn is funded by debt issued by Prasarana. The debt is estimated at RM160bn which is expected to be spent over a period of 10 years. From past experience we know these debts become official debt included eventually in the country’s balance sheet. They do because returns from pubic transport projects are never sufficient to cover the huge capital outlay.
Public Debt, including loan guarantees, 2011-2012

Domestic debt
Treasury bills
Investment Issues
Govt Securities
Housing Loan Fund
External Debt
Market Loans
Project Loans
Total Public debt
Govt Guaranteed Debt
TOTAL Shadow Public Debt
Sources: various. 

Look at the above figures. Government guaranteed debts rose by 4.2 percentage points of our GDP. It expanded by 149%! If we now include all those hidden contingent liabilities into the official public debt figures, then clearly total public debt in 2011 was 61.9% of our GDP and in 2012 it is 68% of our GDP. It has exceeded the 55% legislative limit.
The government ministers will continue giving us the mentally deficient answers that our public debt is smaller than Singapore or Japan. But these countries have the capacity to pay. Our ability to pay seems to be based on fortuitous events and chance and the willingness by the political masters to want to pay. If they continue to be insensitive, the debts will not get paid and they will spend and spend until we go bankrupt.
So now we can rebut what Awang Adek said about achieving our growth rate as being a walk in park. It is if you massage the figures and do a sleight of hand.  He did not tell us the impressive growth rate of over 5% came from the high debt taken up by government linked entities which are not reflected in our balance sheet currently. That was why investment expanded at a blistering rate of 26% in 2Q of 2012.
The government is cheating the public. It wants to spend money to buy voters as the elections draws near. It wants to maintain populist policies such as retaining subsidies on fuel and giving all the BR1Ms. It hides all these from the official balance sheet. By using the instrument of the shadow debt, it can sidestep the ceiling of 55% debt-gdp ratio. Taking this approach allows the government to also sidestep carrying out more serious fiscal reforms such as changing the manner it spends money. Doing such things like cutting fuel subsidies.
Awang Adek did not bring our attention to the debts incurred by Non-Financial Public Enterprise (NFPEs). Thus we cannot see the numbers in their Consolidated Balance Sheets. The fact of the matter is NFPEs registered the highest deficit to date- 6.2% of the GDP in 2012.  It was only around 0.5% in 2011. What do these NFPEs do? They do the large infrastructural projects like MRT construction, TRX, Bandar Malaysia Sungai Besi and Iskandar Region in Johor. They never tell us, they use a lot of money to finance these projects which are not reflected in our official balance sheets. 
Which Park is Awang Adek referring to?


bruno,  22 November 2012 at 13:36  

Dato,the escalating public debt the GOM acknowledged is what bean counters already know.What the bean counters and the public do not know is how many hundreds of billions,if not trillions the Umno GOM has received from Petronas and how much the Gomen has borrowed from EPF.

Even the cash cow workers pension fund called EPF is already pokkai.If the EPF is still flushed with cash,why do it have to borrow from commercial banks 300 million pounds,and pay them higher interest rates to finance their London real eatate purchase.Even a child would know that the maths do not add up.

If the EPF a cash cow has to go borrow money from banks,then it is no longer a cash cow.If it is no longer a cash cow,then we have to wonder where the cash has gone to.Has the cash gone to the gomen,Umnoputras pockets or the GLC's.

So as we take with a pinch of salt the figures given by the gomen,plus the money from Petronas and EPF,the national debt has gone way over the ceiling.Maybe far more than the Greek gomen's national debt.So technically the GOM is in league playing hardball with the Pigg's nations,a bankrupt gomen.

The blessed GOM has a cat's nine lives which it has outlived and soon to expire.Because it has the public institutions under its thumb,the Umno GOM has been able to cook its book.It is a ponzi scheme,soon to be exposed.In the universe all bad things eventually has to come to an end.And that end will be on the night of the GE.

bruno,  22 November 2012 at 13:59  

Hedge fund billionaire trader Raj Rajaratnam is the boss of Galleon.He will even poke his head under skirts,blouses and sarongs to look for insider tips.And compare to all his billions,these illegal gains are small change.

Now SAC hedge fund boss Steve Cohen is being grilled by the Feds.He was involved in giving the green light to one of the insider trades.Now the Feds has to prove whether he knows that the information was illegally gotten.

These guys are super rich,and their money can feed tens of generations to come without working a sweat..But they have the same mentality of the Umnoputras.That greed have no limits.And eventually the money gods caught up with them,make them pay dearly,shamed and spent their retirement in stripped pajamas.

Anonymous,  22 November 2012 at 16:14  

Deme saloh dengo....Kawe ghoyak ;

'''it's like fakin in the park, buke wakin in the park....."


hishamh 22 November 2012 at 16:47  


Just as a point of reference, Malaysia's government contingent liabilities don't appear to be out of line with our peers (bearing in mind its tough to get data on this).

Fiscal contingent liabilities rose an average of about 6.5% of GDP in Europe in 2009-2010. Italy (which has the same sovereign rating as we do) has seen contingent liabilities rise 10% of GDP in the past year alone. US contingent liabilities related solely to loan guarantees are 10% of GDP, not inclusive of Fannie Mae or Freddie Mac, AIG or social security. The Philippines carries about 30% of GDP in contingent liabilities related to infrastructure projects.

By those standards, Malaysia's isn't very high.

BTW, the "legislative" debt limit of 55% only caps borrowing via MGS, GII, and Islamic Treasury Bills, not total government debt. Actual debt that counts toward this limit totals only around 45% of GDP.


Government borrowings from EPF are counted as part of official government debt. Dividend payments from Petronas are captured under government revenue as returns on investment; both royalties and petroleum income taxes are captured as well.

As far as EPF funding of their real estate ventures in the UK are concerned, its just good corporate finance. UK interest rates are lower than they are in Malaysia, and borrowing means the EPF doesn't have to liquidate any of their asset holdings in Malaysia. Also, it's good risk management practice to match revenue streams and debt repayments in the same currency, which obviates against the need for potentially expensive forex hedging.

Anonymous,  22 November 2012 at 17:18  

The reality is that country debts is not government's problem as long as it can use them to keep them in power

the more the country spend, the higher the chances of getting fat commission and projects to enrich themselves

at end of day, the country and public suffers, the retired and former gov who are filthy rich just migrate oversea

Greece is one good example

Anonymous,  22 November 2012 at 17:54  


Today's report about how much we paid for the speed cameras, just google [Laser Trucam price] and you will find that Ohio state (USA) also paid US$4,995 for each unit. We, on the other hand, paid over RM100,000 per unit!

OneMalaysian,  22 November 2012 at 17:56  

Dear Sakmongkol

“When the public complains about rising public debt, our leaders say they are below the 55% debt-gdp ratio. There are no reasons to worry.”

Our dumb minister of finance likes to quote Singapore as an example of a country with a large debt:GDP ratio and is prosperous. Fact: Singapore’s Debt:GDP is 118%. Fact: Malaysia’s Debt:GDP is 53%, just below the statutory limit of 55%. Are we doing a lot better than Singapore?

No, dumb minister, that is not how you look at the ratios and conclude – wrongly – that Malaysia governed by UMNO/BN is doing better than Singapore governed by the PAP. Singapore runs a budget SURPLUS while we run a DEFICIT of 4.5%. This means we need to borrow money to stay afloat, pay our public bills and fund BR1M. These deficits have caused our national debt (excluding off balance sheet guarantees of RM140 billion) to balloon from RM217 billion in 2006 to RM502 billion in 2012, at a compound rate of about 17% p.a. So unless the government cuts this run away rate the country will go bust.

How come Singapore has a big public debt if it runs a budget surplus? Answer: because it borrows not to fund operating expenditure but to INVEST. Singapore has excellent credit rating, so it can borrow cheaply and sends the funds to investment agencies like the Singapore Investment Corporation that invests all over the world. The returns exceed the borrowing costs. So this is a clever move. Not so the UMNO/BN government that borrows to give bribes (BR1M, etc) to win party elections.

Over the past 3 years Petronas sent the government a dividend cheque of RM30 billion which it used to run the budget. Petronas wants to cut this payment to RM27 billion so that it can spend on exploration to maintain oil output. Our low-cost domestic reserves are dwindling, and foreign sources are expensive to buy, explore and produce. In other words Petronas will be less profitable and will need more capital. So an important source of government funding is drying up.

Maybe our dumb minister should look at Spain rather than Singapore. Spain’s debt:gdp is only 68%, which is our % (53% + 15% off balance sheet) if we factor in the off balance sheet items. This is very close to Spain’s. And Spain is living with the Sword of Damocles hanging over its head. It could fold very quickly if the European Central Bank does not come to its aid soon.

But who would come to the aid of this spendthrift UMNO/BN government? Surprise: it is the good and hard-working people of Malaysia through the EPF. The EPF uses about 70% of all accumulated contributions – yes, the money each working Malaysian sock away monthly – to buy government securities, that is, debt. This is supposed to be a “safe” way to invest our money. But is it? Our money is borrowed and spent carelessly on extravagant projects we don’t need, and to buy expensive armoured vehicles and submarines, etc. Meanwhile inflation devalues our savings, so what is given back to us when we retire is worth a lot less. Everyone should be concerned about these budget deficits because it affects us all. Only a responsible government can save us.

Anonymous,  22 November 2012 at 20:21  

the situation is same as many listed companies. the compannes gone bankrupt but the former directors are wealthy, one eg is Tiing Peki Kingg

Same at country level, high debts at national level but the ministers and family are super wealthy

Obviously, those with authority have objective to enrich themselves while company's and national debts are secondary

bruno,  23 November 2012 at 08:45  

Few months ago,CPO having traded to 3 yrs low at 2,180 and having a correction to 2,500,has again dropped to below 2,300/ton.This could be the start of another wave lower to the 2,000-1,750 level.

Anonymous,  23 November 2012 at 09:23  

Someone wrote that ‘as EPF funding of their real estate ventures in the UK are concerned, its just good corporate finance.’

This is a standard in-the-box economic thinking. Common, but not necessary applicable to all business. In the case of EPF, this line of thought is doesn’t make sense!

There r 1.3M workers contributing to EPF monthly. Let say the average monthly contribution for RM3K @ 20% is RM600. EPF collects a recurring RM780M per month. In fact there r reports saying that EPF’s monthly collection is more than a billion ringgit a month!

So EPF is loaded with cash every month. To pay for the property purchase in UK, by cash, is really a 'walk in the park' in EPF’s book.

EPF doesn't have to liquidate any of their asset holdings in Malaysia for those purchases. & yet EPF is going to the market for loan!

Granted that UK interest rates are lower than they are in Malaysia, but EPF still needs to pay interest (BIG Money for the bank syndicates) when she can instead save the interest payment to invest in more income generating financial ventures.

As far as ‘good risk management practice to match revenue streams and debt repayments in the same currency, which obviates against the need for potentially expensive forex hedging.’ is BS;

1st those properties r income generating in local currency, they must be self sustain in financial bookkeeping. Otherwise while buy?

2nd as an financial institution that hold portfolio oversea in trust, yet if she cant monitor & leverage against forex hedging, this must be the biggest laugh… Perhaps it’s an easy excuse for paper-pushers. No?

hishamh 23 November 2012 at 10:50  

@anonymous 09.23

Why estimate EPF contributions when its publicly disclosed?

You're right that they're pulling in an average RM1 billion a month, but that's an average not a constant, and has to be matched between contributions and withdrawals. In other words, liquidity management is necessary and much of that cash flow has to be kept liquid i.e. in short term money market instruments. When I was at PNB, we always had the same problem. It's not a simple matter of just dumping the money into any investment you take a fancy to.

Second, the difference in interbank rates between the UK and Malaysia is nearly 3% - that's big money savings. EPF has a legal mandate to maintain returns to contributors funds in excess of 2.5% which is effectively their opportunity cost of capital for using contributor sourced funds. Every little bit of savings helps.

Third, forex hedging is expensive and subject to a high degree of uncertainty (forex are the hardest markets to forecast). As a result, more often than not partial hedging is resorted to, but partial coverage also implies exposure to partial conversion losses.

S O L I T A R E 23 November 2012 at 13:14  

A mind boggling rm554 a secondjust to pay interest (assuming 3.5% interest on 500 billion)

Anonymous,  23 November 2012 at 19:43  

BN record in 55 years-- RM 600 billions debts ,, plundering n making maaysians slaves-- modern day slaves.. a rich nation of beggars created by who lah

Anonymous,  24 November 2012 at 17:01  

Sak, Walla in a few days i will be leaving for an assignment abroad, enroute i will meet up with my Malay relatives of mixed parentage whom have brain drained and doing really well professionally based on intelligence and character, known only as Malaysian at last !

Looks like the last Melayu will be coming to pass in a decade or so, caused by Melayu elites' own arrogance and superiority. DON'T blame fellow rakyat Malaysia. What is there to brag when ones are wealthy with one or two cheap labor waiting on hand and foot, they sure look seductive and seemingly docile Melayu dengan pretentious feudalist " budi elite" with the elites only, until they face real life - expensive to be maintained. We, the few of us young professionals still enjoy a great laugh over the phrase during socialising.

They no longer want to return and be incapitated again in the doldrum and working in organisations where people are recognised based on wealth, position, status, hard - ly working, but getting the promotion without merit and enjoying huge salaries and perks. And pratise segregation by bigotry, racism, color or language, the ingrained behavior of insane suspicion and jealousy and slanders that cripple any excellent work or intentions whereby intelligence, character, the freedom of doing things right are challenged by threats, status, incompetent people and kaki ampu.

And the no so fluent BM is not tolerated in Malaysia, the color blind is not accepted, can't they see the impact of having to be at par or even better than the best in the west ? And the system of education in Malaysia, the crime rate, is a no no pulling factor. And they sure keep their faith, love GOD more and pray to be useful and humble human beings.

Oute by Walla " The strength of carrying the heavy responsibilities of being educated on ones shoulders with dignity " in his incredible wisdom and utmost sincerity.

They have found their rest at last by serving humanity abroad, keep upgrading knowledge and life experiences and enjoying old and new friends, ahhh yes, Malaysians sure need to learn how to appreciate people and friends.

Yes, there is some form of detachment as years pass by, but sure they miss loved ones and color blind Malaysian friends who have once allowed their intellect, spirit and soul to thrive !

In the coming 13th GE, will the rakyat unanimously agree to unite and to do the Right thing for once : to end the corrupted regime with no intention to change beyond the umno, rebranded clairvoyance - wayang !

Dear Walla, may the force of renewed vigor, happiness, good health and greater wisdom to write with such precision and sincerity and may many readers honor you by treating you to hot spicy tom yam kung, coffee laced with pharmaton, chicken soup with pau sum !

And Victory for Sak in GE 13 ! Cheers.

walla 25 November 2012 at 07:42  

Anon 17:01,

I am very proud of your thoughts from both mind and heart! May Blessings be a constant partner in your life sojourn ahead.

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