KUALA LUMPUR (June 1): The Debt Management Committee chaired by the Ministry of Finance has convened its first meeting yesterday to tackle the government’s massive debt and liabilities of RM1.1 trillion as at end-2018, which is about 75.4% of the country’s gross domestic product or GDP.

“This was partly due to a RM54.2 billion rise in direct government debt to RM741.0 billion from RM686.8 billion in the previous year. The rise in debt was used to finance the fiscal deficit, especially for expenditure arising from PPP (public-private partnership) lease commitments and off-budget spending that were previously not transparently included in the budget.

“Total committed government guarantees that are paid by the government, to finance ongoing public transport projects like ECRL, MRT and LRT, also rose. The increase in committed government guarantees was not caused by any new infrastructure projects but instead, was due to the need to finance existing ones. In other words, the rise in liabilities is to fund projects that were approved under the previous administration,” the MoF said in a statement today.

The government is committed towards fiscal consolidation and the consolidation of its debt and liabilities, it said, so the committee will look at how to cut the debt and liabilities and improve the management of these items.

These measures will include evaluation of high-cost projects and identification of government-guaranteed debt to be restructured. The DMC will also review all acts, procedures and legal requirements relating to issuance of direct government debt, government guarantees and other government commitments.

“This measure is needed because the debt service charge for various financial obligations is preventing the government from funding other more productive programmes and projects,” the MoF said.

Issuance cost of debts backed by govt guarantee should be equivalent to MGS

At the moment, the issuance cost of some government-guaranteed debt are similar to those issued by domestic corporate entities with AAA credit rating, it said.

“However, the issuance cost of any debt backed by government guarantee should be approximately equivalent to government papers like the Malaysian Government Securities (MGS),” it said. The 10-year MGS, as of May 31, has a coupon rate of 3.78% per annum, which was among the lowest rates enjoyed by the government in recent history, it added.

“The government will proceed with its fiscal consolidation in order to ensure there is sufficient fiscal space to address future crisis, without adversely affecting the performance of the domestic financial market, while supporting economic growth. The government is confident that these measures will help to maintain our sovereign credit ratings at A3 and A-.

Announced in Budget 2019 and formed just two weeks ago, the 10-member DMC comprises MoF minister Lim Guan Eng as its chairman, with committee members being: the Chief Secretary to the Government Datuk Seri Dr Ismail Bakar; Treasury secretary-general Datuk Ahmad Badri Mohd Zahir; Economic Affairs Ministry secretary-general Datuk Saiful Anuar Lebai Hussen; Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus; Securities Commission Malaysia executive chairman Datuk Syed Zaid Albar; Permodalan Nasional Bhd group chairman Tan Sri Dr Zeti Akhtar Aziz; Accountant-General of Malaysia Datuk Saat Esa; PricewaterhouseCoopers Malaysia executive chairman Datuk Mohammad Faiz Azmi; and Economic Adviser to the Prime Minister Dr Muhammad Abdul Khalid.

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