Malaysia’s debt

Malaysia has a debt of over RM1 trillion. Where do they come from? Included in the figures are RM199 billion of Government guarantees (GGs) and RM201 billion in committed payments for Public Private Partnership (PPP) projects.

Entities like Danainfra (for MRT), Govco, Malaysia Rail-link and 1MDB issued bonds / sukuk or borrowed to finance their projects or investments. But because they were not credit-worthy on a standalone basis, the Government guaranteed their debts. Guarantees are contingent liabilities, ie. they become a real debt contingent upon the borrower being unable to pay. They do not appear in the balance sheet itself except as a note. So they were not counted as a Government debt. But in this case, as the entities have confirmed that they are unable to pay, the contingency has become a reality. The debt becomes the Government’s.

PPPs were initiated by the Government to fund projects like hospitals, university campuses (e.g. UiTM), buildings (JKR training centre in Melaka) and schools off their balance sheet. PPP contracts were awarded to the private sector to finance, build and maintain. In return, the Government pays them an availability charge and a maintenance charge every year. These are fixed obligations over the concession period.