KUALA LUMPUR, June 23 ― Malaysia will not succumb to an economic crisis despite a 70 per cent debt level, which includes on and off the books debt, as long as the country remains politically stable.
Dean of Malaysia University of Science and Technology Business School Dr Yeah Kim Leng said Malaysia had the capacity to pay off all its debt which will keep the country afloat economically.
“So the question now is whether the contingent liabilities will trigger a crisis or not in the event the government is not in a position to be able to repay… from a fundamental position you don't see that unless there's a political crisis.
“Although it may mean a further deterioration in our fiscal position or debt level, nonetheless it's still within the ability of the government to absorb all this increased liabilities,” Yeah said following the launch of the ‘Asia Bond Monitor' ― a report that tracks the bond market ― which is a product of the Asian Development Bank.
In the case of contingent liabilities like the National Higher Education Fund Corporation (PTPTN) loans, it is unlikely that a default would occur which could then trigger a crisis.
“For example the PTPTN loans, the LRT loans, those contingent liabilities are unlikely to be triggered in the sense that they do have enough, they are self-sustaining.
“If you look overall in terms of reserves, in terms of their ability to take on more debt, it’s unlikely the government will let any of its obligations fail,” he said.
Yeah also pointed out that many European countries were at a 100 per cent debt level while Malaysia, even with its off balance debt sheet, was only at 70 per cent giving it some room to manoeuvre.
“The buffer is still there but we should not test or stretch the markets too much. We still need to maintain some kind of prudence because the higher we go, the more we need to be prudent basically to ensure no crisis can happen at all,” he said.
This comes after the Najib administration revealed in June 8 that it was spending between RM4.76 billion and RM11.62 billion annually off its balance sheet for nine companies under the Finance Ministry for a five-year period from now until 2020.
Assets or debts that do not appear on a company’s balance sheet are considered off-balance sheet spending. Off balance sheet refers to items which the company does not have a legal claim or responsibility for.
DAP's Tony Pua later said on June 15 that the prime minister's extolling of the government’s financial discipline belies Putrajaya’s practice of borrowing “off the balance sheets” to artificially avoid breaking the debt limit.
Putrajaya’s use of government-linked subsidiaries to borrow RM157 billion up until the end of 2014 would have racked up a national debt of 70 per cent of the GDP if these liabilities were not kept off the country’s budget via a loophole, the Petaling Jaya Utara MP added.
Among others, Pua pointed out that state-owned firm Pembinaan PFI Sdn Bhd spent RM27.9 billion on projects that contributed to the national deficit but was kept of the government’s accounts for over five years.
