Tuesday, June 16, 2015

Najib, a Master Manipulator at Work - Capped Debt at 55% GDP a Mockery

Dato’ Seri Najib Razak should stop providing false appearances and assurances on the Federal Government budget using highly misleading statistics.

Bernama reported yesterday that the government remains committed to strengthening public finance without jeopardising growth, while providing fiscal support for reform initiatives.

"Our fiscal targets for 2015 remain intact. The deficit will be further reduced to 3.2% of the gross domestic product (GDP) from 3.4% in 2014," Dato’ Seri Najib Razak said at the Budget 2016 Consultative Council meeting today. Najib, who is also finance minister, said the federal debt would be capped within 55% of the GDP.

None of the above statistics stated by the Finance Minister is any where near accurate due to various creative manipulation of government expenditure, especially over the past 5 years.

We already know that much of the Government’s expenditure are via newly created Ministry of Finance subsidiaries which undertook RM157.5 billion of loans guaranteed by the Federal Government as at 31 December 2014. If the above contingent liabilities figure were to be included in the official federal government debt, it would add up to nearly 70% of our GDP.

Hence it is a mockery that Dato’ Seri Najib Razak continues to insist that the Federal Government debt remains “capped” within 55% of GDP.

In addition, the contingent liabilities figure doesn’t even reflect all the Government’s “off balance sheet” expenditure.

In a Parliamentary reply on 8 June 2015, Dato’ Seri Najib Razak stated that “up till May 31 2015, there are nine government-owned companies via the Finance Ministry Incorporated (MKD) which has expenditures that have been classified as off balance sheet, currently borne by the government.”

For example, one of these wholly-owned MKD subsidiaries, Pembinaan PFI Sdn Bhd (PPFI) has borrowed and spent RM27.9 billion on various projects. However, none of these projects or expenditures was ever reflected in any of the Budgets tabled over the past five years. The result is a significantly understated budget deficit.

In fact, the PPFI loans from the Employees Provident Fund (EPF) and Kumpulan Wang Amanah Persaraan (KWAP) do not even get reflected as a contingent liability of the Government via a clever financing agreement between PPFI and the Government.

What the Ministry of Finance has done was to shift various sorts of expenditure “off balance sheet”. As a result, these expenditures which are ultimately bourne by the Federal Government, are hidden from the annual budget figures and statistics. These off-balance sheet expenditures are a clear loophole for the Government to spend well above what has been officially approved by the Parliament in the Budget.

The Finance Minister also admitted that as a result of these off-balance sheet expenditure, “the annual payment for this between 2015 and 2020 is between RM4.76 billion and RM11.62 billion”. This represents the commitment on future government expenditure without the debt or liabilities reflected the budget or balance sheet today.

All of the above mean that the official debt of the government is severely understated to keep the figures below the 55% debt limit. The budget deficit is correspondingly understated to give a false picture of a low, sustainable or reducing deficit. These render the figures meaningless.

It is hence disingenuous for the Prime Minister to continue using these figures to give the façade that “the government remains committed to strengthening public finance”.

If Dato’ Seri Najib is really serious about commitment to “strengthening public finance”, the Government must exercise transparency in these off-balance sheet projects and incorporate all these expenditures into its annual budget tabled for approval in the Parliament. Only then can we be assured that the budget and debt statistics reflect the actual spending by the Government, allowing the Members of Parliament and financial analysts to evaluate the prudence and appropriateness of Government policies.

Tony Pua

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