Saturday, October 29, 2016

Treasury-General not telling the whole truth when dismissing Non-Financial Public Corporations as a time-bomb for Budget 2017

After the Prime Minister Dato’ Seri Najib Razak announced the Budget for 2017, I had issued a statement warning of a time-bomb hidden in the depths of the Economic Report, often unnoticed in budget presentations.

In 2013, the budget deficit was 3.8%.  The figure declined to 3.4% and 3.2% in 2014 and 2015.  For this year, the Government estimates it to be 3.1% and is forecasting 3.0% for 2017.

However, what is the above relatively benign figures mask is the increasing shift of expenditure from the official Federal Government budget to state-owned corporations.  Hence in reality, Government spending is higher than ever, increasing the risk to the economy with larger borrowings and contingent liabilities.

Some of these hidden off-budget spending are exposed in the obscure Non-Financial Public Corporations (NFPC) Financial Position (Table 6.13 p161 Economic Report 2016/7 – see below).

NFPCs includes 29 key government-linked companies including Indah Water Konsortium, KTM Bhd, Telekom Malaysia, Malaysia Airlines Bhd, Malaysia Airport Holdings, Petronas, Prasarana, Syarikat Perumahan Negara, Tenaga Nasional, MRT Co and the UEM Group.

The table clearly showed that the the NFPC deficit which was a modest RM10.6 billion deficit in 2013 leaped astronomically to RM52.3 billion in 2014 and further increased to RM56.9 billion in 2015.  The estimated deficit for 2016 is currently RM50.5 billion.

Effectively, Government-owned enterprises are having much larger deficits than the Federal Government itself.  The Federal Government budget deficits for 2015 was RM37.2 billion.  In 2016, it is estimated to hit RM38.7 billion while the Government forecast RM40.3 billion for 2017.
When this matter was raised to the Treasury-General Tan Sri Irwan Serigar on Monday, he dismissed my warning that the NFPC deficit is a ticking time-bomb waiting to explode.

He said “NFPCs are Government-Linked Companies which huge investments, and they have borrowings… Everybody needs to invest”.

He further added that “It is a contingent liability, but its not a time bomb kind of thing as they can repay their loans.  They are big entities with large resources.

“For example, Tenaga Nasional and Telekom Bhd, they are making profits. If they have borrowings for their projects, are you going to say it’s a time-bomb?” Tan Sri Irwan asked rhetorically.

The Treasury-General is being extremely disingenuous by citing only the big public listed companies as examples.  Out of the list of 29 companies, there are also other companies which are generally well-managed and would have no problems servicing their financial obligations, such as Axiata and Petronas.

However, there are many other entities among the 29 which are nothing other than vehicles for Government expenditure which more likely than not, will never generate sufficient income to service their loan obligations.

Why didn’t Tan Sri Irwan Serigar point out the fact that Prasarana’s RM13 billion of debt and mounting expenses have only increased and requires annual Government grants to keep the company afloat?

Why didn’t he point out that MRT Co is undertaking a RM22 billion investment for the current Sg Buloh – Kajang line and is planning another RM26 billion MRT II line which is financed almost entirely debt which are never likely to be repaid without future Government support?

Or the fact that among the 29 companies lie many critically ill GLCs which had required or will require government bailout, such as Keretapi Tanah Melayu (KTMB), Malaysia Airlines, Penerbangan Malaysia, Silterra Malaysia and Syarikat Perumahan Negara?

Worse, the list of 29 NFPCs isn’t even conclusive.  They leave out a number of other key Government-owned enterprises which heavily commit the federal government to meeting their obligations for many years to come.  This list will include PFI Sdn Bhd which took a RM30 billion loan from EPF to carry out general public infrastructure works, Pembinaan BLT with a RM10 billion debt to build police stations nationwise, and of course more recently controversial companies such as 1MDB and SRC International.

I call upon the Secretary-General to be stop creative accounting with the country’s national budget in order to manipulate the perception towards the Government’s financial position.  Such actions will only bring short term benefits but bring long-term pain, reminiscent of the Greek-type government spending which ultimately brought collapse to the country.

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