On 26th. November 2020, it was reported that the country has to repay RM$3.272 billion by 2021 in loan installments and interest on debts - out of a combined outstanding amount of RM$44.5 billion of government-guaranteed debts -owed to 1Malaysia Development Berhad (1MDB) and its former subsidiary SRC International Sdn Bhd.
Both 1MDB and SRC International was then facing a critical financial situation whereby these two companies were no longer actively operating. They were unable to fulfill the obligations of repaying debts that were either directly or indirectly as guaranteed by the Malaysian government.
"For 1MDB, the total balance of 1MDB’s debt (principal and interest) on October 31, 2020 is RM40.87 billion, while the amount of 1MDB debt that has to be paid in 2021 is RM1.705 billion which involves interest/coupon payments for three bonds and one sukuk issued by 1MDB and its subsidiaries.
"This total is based on the assumption that the foreign exchange rate is at RM4.20 for each US$1.00. The repayment of 1MDB’s debts in 2021 will be made by using the 1MDB asset recovery funds and government financial allocation”.
As at June 2022, RM$10.84 billion had been used – from the 1MDB’s asset recovery funds kept in a trust account under the MOF, known as the Asset Recovery Trust Account (ARTA) – to repay 1MDB’s debt of RM$30billion outstanding as on 30th. June 2022; this ARTA fund still has a balance of RM8.83 billion currently, (theedgemarkets, 22/07/2022).
As for SRC International, the civil service’s pension fund Retirement Fund Incorporated (KWAP) has to restructure the RM4 billion loan it had previously given to SRC International, with effect from the year 2020 to March 28, 2022.
Regarding the SRC International debts:
"The total balance of borrowings after the restructuring is RM3.67 billion which covers the loan’s principal and interest. For 2021, the amount of scheduled payment to KWAP is RM$1.567 billion which covers the principal payment of RM$1.5 billion and interest payment of RM$67.1 million that will be paid through government financial allocations”.
If one is taking the 1MDB’s RM$1.705 billion interest payment and SRC’s RM$1.5671 billion scheduled repayment, total that the country has to repay - in 2021 - was then RM$3,272,100,000 (+$3.2 billion).
With reference to the amount of government debt, including government-linked companies (GLCs), as at October 2020, it was stated that the GLCs are to be responsible for their own debts.
"Regarding the debts of GLCs, all GLCs are responsible for the fulfillment of their financial obligations. Whereas for 1MDB, this obligation will be borne by the federal government.
"The government is continuing efforts to recover 1MDB assets. As of September 30, 2020 the balance of the 1MDB asset recovery trust account is RM11.7 billion and all of it will be used to repay 1MDB’s financial commitments”.
In fact, by September 2020, the total national debt exposure and liabilities were estimated to be RM$1,257 billion (that is RM$1.257 Trillion) or 87.3% of GDP.
However, other amounts not stated, but need to be disbursed that would cover various other commitments such as the RM$177 billion worth of guarantees on GLCs’ debts for infrastructure projects and public utilities, 1MDB’s debts of almost RM$32 billion and another estimated RM$173.3 billion for public-private partnership (PPP) projects and off-budget projects that were previously implemented, but yet to be paid.
Overall, RM$43.1 billion or 18.4% of country's total revenue is to service the debts of nation in 2022.
Some reflections during a period when budgets will be under pressure for years to come, concurrent with higher spending pressures, but lower revenues, and yet foreseeable elevated debt.
1. How the national economy can recover post-pandemic so that its debt exposure and liabilities will be at a controlled level shall be a magnitude task difficult to manage - more so under a regime of kleptocrats prone to a serial systemic corruption syndrome.
2. On one dimension, the nation needs to expand its revenue base which, outside the petroleum and commodity resources, its manufacturing base has lost its vitality and an engineering endowment ecosystem owing to the prematured de-industrialisation process during the 1990s.
3. Indeed, the overall decomposing of the national economy and the consequential structural break were beginning to emerge by early 2000s. Some of the glaring symptoms like declining and deteriorating parameters in export growth and (FDI) foreign direct investments coupled with the increasing number of country's youth unemployment and skilled migration are clearly visible presence (see Emir Research, August 2022):
4. Further, the overall strengthening in governance has yet to be addressed wholesomely, both at the political-will level as well as the economic restructuring as specified frequently during World Bank consultancy visits and the various IMF Research Papers, specifically the Olin Liu et al on restructuring specifics that are due, comprising not only on economic transformation but governance issues regarding the rule of law, functioning courts, and transparent government regulations, too.
5. Then, the tax base can still be expanded, and extended, through implementation of a windfall tax on industries that benefit greatly from the Covid-19 crisis as proposed by Khazanah Research Institute senior advisor Professor Dr Jomo Kwame Sundaram; concurred by Institute of Malaysian and International Studies research fellow Dr Muhammed Abdul Khalid who had pointed out that policymakers tend to ignore the imposition of a capital gains tax.
6. The transparency and judicially in tax compliance can be tricky, given how the affluents often move their fortunes from one tax jurisdiction to the next. An option to consider while implementing a wealth tax is for the rich to redeploy the tax payable by purchasing govt bonds or private debt securities with a particular tenure.
A new desirable tax regime is appropriate because Malaysia tax to gross domestic product (GDP) ratio has been on a steady decline over the medium term. It fell to 12% in 2019 from 15.6% in 2012.
7. The other discipline lies on an administration to increase spending efficiency in controlling Malaysia’s fiscal deficit levels to a positive target, see theedgemarkets 28/03/2022 whence the kind of spending that can’t go on forever.
8. Presently, the inadequacy of an economic development model other than the Development Advisory Service Harvard approach which dashed any progressive route other than the adoption of a western neoliberalism-is-neoimperialism regime.
This comes at a time when global state-driven efforts to re-shore jobs and production are gaining traction, regulate supply chains are decoupling from geopolitical rivals, and there is a zero-sum competition over technology that are restructuring markets whereas with us as a nation still treading at a bullock pace.
9. A new paradigm demanding eradication of clientel capitalism, eliminating ethnocapital domination and the decapitation of kleptocractic leadership is a necessary step forward.
10. Only with a liberation of mind can then the re-imaging and remaking Malaysia a better place in a shared common prosperity within a harmony society is feasible and viable.
Selective BACKGROUND READINGS to understand some of the problems affecting the country:
The politicalisation of the civil service bureaucracy and the insertion of political Islam in a Malaysian society
An understanding of post-colonial capitalism that gives rise to the emergence of clientel ethnocapitalism
The NEP intrusion in Malaysian society contributing to an ethnocractic and ethnocapital hegemony