KUALA LUMPUR, May 25 — Malaysia’s new Finance Minister Lim Guan Eng yesterday gave a breakdown of government debt and liabilities exceeding RM1 trillion, a figure that’s fuelled market worries and raised the prospect of a credit-rating downgrade.

Prime Minister Tun Dr Mahathir Mohamad said this week that the number was higher than previously disclosed under the administration of ousted leader Datuk Seri Najib Razak, partly because the state had given guarantees to companies, like 1MDB — the investment fund at the centre of a multibillion corruption scandal — which now can’t repay its debt.

Lim said in a statement yesterday that the government’s liabilities as at the end of last year comprised of the following:

Federal government debt of RM686.8 billion, or 50.8 per cent of gross domestic product. Government guarantees of RM199.1 billion, or 14.6 per cent of GDP. The government is committed to paying the debt of entities which are unable to do so, including RM42.2 billion for Danainfra Nasional Bhd, RM26.6 billion for Prasarana Malaysia Bhd and RM38 billion for 1MDB. Lease payments for public-private projects of RM201.4 billion, or 14.9 per cent of GDP. The government is obligated to pay for rental, maintenance and other costs on a number of projects, such as construction of schools, hospitals and roads.

That takes the total debt to RM1.087 trillion, or 80.3 per cent of GDP, which Lim said was a number Malaysians are “rightly concerned” about and that the government will take action to fix.

‘Bite the bullet’

“This new government puts the interest of the people first, and hence it is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces at a later date,” the finance minister said in the statement.

He added the fundamentals of the economy are strong, the financial sector is stable, and banks are well-capitalised.

Lim told reporters in Kuala Lumpur that the government will honour its commitments, including 1MDB’s debt.

Najib denied that his administration had hid RM300 billion in debt, saying in a Facebook post that it had complied with international public debt reporting guidelines, which excludes contingent liabilities.

Indeed, credit rating companies and economists have long raised risks related to Malaysia’s off-budget debt, even though the previous administration had made strides in bringing its fiscal deficit down to 3 per cent of GDP.

Tax cut

Fitch Ratings Ltd said one of the notable policies being developed under the new government is a possible review of the state’s contingent liabilities and infrastructure projects.

“If carried out effectively, such a review could help limit the build-up of risks to broader public finances over the long term, though at the expense of creating some headwinds for domestic demand and growth,” Sagarika Chandra and Stephen Schwartz from Fitch Ratings’ sovereigns team, said in an email. Fitch is monitoring developments to see how it affects the nation’s A- rating.

Mahathir’s shock election win adds another dimension of uncertainty around the budget. He moved quickly to scrap a 6 per cent goods-and-services tax, without putting in place any measures yet to raise new revenue to plug the hole.

The government is considering reintroducing a 10 per cent sales-and-services tax, while Mahathir plans to curb spending by firing thousands of contract workers and reducing pay for cabinet ministers. — Bloomberg