The Malaysian Reserve: Overall national debt declines as 1MDB arrears fall

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Overall national debt declines as 1MDB arrears fall

The government’s commitment to pay debt linked to state fund 1Malaysia Development Bhd (1MDB) has cut the overall national debt and liabilities by nearly 4% to 75.4% of GDP from 79.3% in the past year.

Finance Minister Lim Guan Eng (picture) said the recovery of approximately RM925.1 million worth of 1MDB-linked assets, excluding the sale of seized luxury yacht Equanimity for RM523 million, have so far been used to repay 1MDB debts which is estimated at RM32.2 billion in principal sum.

Malaysia is seeking to recover about US$5 billion (RM20.95 billion) worth of federal assets lost, believed to have been siphoned from 1MDB to at least six countries.

US bank Goldman Sachs Group Inc, which raked in a hefty US$600 million in commission from a bond deal with 1MDB, said recently it would help return the money to Malaysia, but did not go into specifics. About 17 of its employees are now facing criminal charges for their alleged role in the issuance of the bonds.

“These and future recovery proceeds will go entirely towards the repayment of 1MDB debts,” Lim said in a statement yesterday, adding that the government’s proposed divestment of non-core federal assets would also be used to cut the national debt.

“The Prime Minister’s Office is completely in charge of divesting various non-core and non-critical assets to rebalance the government’s portfolio and realign the role of the public sector. The proceeds from these divestments, when returned to the treasury in the form of dividends, will be allocated towards further reduction of our debt and liabilities,” Lim said.

In the same statement, Lim highlighted an increase in direct debt over the same period which grew from 50.1% of GDP to 51.2% in line with the rise in government guaranteed loans from 7.4% to 9.2%. The minister attributed this to the government’s refusal to resort to off-balance sheet financing to cover-up dubious debts.

Committed government guarantees have increased on the resumption of several mega infrastructure projects such as the Mass Rapid Transit Line 2 (MRT2) and Pan-Borneo Highway.

The amount guaranteed by DanaInfra Nasional Bhd, which raised funds for the two projects, alone had risen 10.5% from 42.2% in 2017 to 52.7% in 2018. Higher guaranteed loans were also recorded in state-owned companies Malaysia Rail Link Sdn Bhd (MRL) and Prasarana Malaysia Bhd.

MRL and Prasarana are owners of the East Coast Rail Link (ECRL) and the Light Rail Transit Line 3 (LRT3) projects respectively.

Lim admitted that the continuation of the projects will substantially increase the government’s committed guarantees in the future. However, he said successful renegotiations on a new cost for the rail projects have offset the figure by at least RM46 billion.

The overall cost of LRT3 was reduced from RM31.6 billion to RM16.6 billion, the MRT2 construction cost reduced from RM39.4 billion to RM30.5 billion while the ECRL construction contract with China Communications Construction Co Ltd was reduced from RM66.5 billion to RM44 billion.

The government has also terminated a RM9.4 billion contract for the Multi-Product Pipeline and Trans-Gas Pipeline projects under Suria Strategic Energy Resources Sdn Bhd after seeing no evidence of work done on-site.

“Despite these challenges inherited from the previous government, we remain committed towards fiscal consolidation, while at the same time ensuring that Malaysia remains on a sustainable growth path, despite the weak global economic environment,” Lim said.