‘Moody’s report did not reveal the true extent of government debt’: Malaysia’s Finance Minister Lim Guan Eng refutes former PM Najib’s Facebook claim

Finance Minister Lim Guan Eng said the RM1.087 trillion debt figure was determined after including contingent liabilities that have become direct debts.

A report published by rating agency Moody’s Investors Service on Wednesday (Jun 13) did not uncover the true extent of the Malaysian government’s debt, said Finance Minister Lim Guan Eng.

The Moody’s report, titled “Government of Malaysia: FAQ on credit implications of the new government’s policies“, contained an analysis of the implications of the new Malaysian government’s policies on the sovereign’s credit profile.

It said that the agency maintains its estimate of Malaysia’s direct government debt at 50.8% of the nation’s gross domestic product (GDP) in 2017.

The report also highlighted the government’s proposed abolition of the goods and services tax (GST), reintroduction of fuel subsidies and 1Malaysia Development Bhd (1MDB) debt as factors which could negatively affect the country’s credit profile.

A report by Bernama quoted Lim as saying: “Moody’s said the direct government debt was RM687 billion ($172 billion) and we’ve never denied this.”

“This itself shows that they (Moody’s) are aware of government guarantees which have become direct double-debts. This should also be taken into account, when you reveal the true extent of government debt.”

He also told reporters after a breaking of fast event on Wednesday that he would reject former prime minister Datuk Seri Najib Razak’s claim that the national debt was not at RM1.087 trillion.

Najib made a Facebook post earlier that day to announce that research by Moody’s had revealed the Pakatan Harapan (PH) government’s claim of the RM1 trillion debt to be untrue, taking the opportunity to slam the administration for mixing politics with financial reporting.

“Moody’s have found those claims to be untrue and have maintained our debt ratio to be at 50.8% declared by the BN (Barisan Nasional) government previously. You can mislead the people but you cannot mislead the experts,” wrote Najib.

“The PH government must have the integrity to adhere to international standards and keep politics out when it comes to financial reporting.”

Explaining the logic behind the trillion-dollar figure, Lim said the federal government’s debt was at such a level because of the government’s intention to include contingent liabilities which have become direct debts.

He said: “For instance, 1MDB’s debts are in the form of guarantees and since 1MDB is insolvent, they cannot pay and the government has to. Why don’t you call a spade, a spade, as these are government guarantees which have become direct debts.”

Further commenting on Moody’s assessment, Lim said abolishing the GST would have positive and negative repercussions.

According to The Star, Lim said although removing the GST would result in the loss of a source of revenue, the government would replace it with the sales and services tax (SST).

He cited Moody’s observation that by removing GST, it would boost consumption and in turn help to stimulate the economy.

Lim also said the government would have to undertake necessary fiscal measures which could create difficulties for Malaysians in order to address the country’s debt. He added that the PH administration was serious about maintaining fiscal discipline and measures would have to be implemented to keep the budget deficit level at 2.8% of the country’s GDP.

“We would continue to convince the capital market that we are serious about addressing the RM1 trillion debt problem as announced by our Prime Minister,” he said.

“I think we have shown how we are going to address our debt level and that is of course, by reviewing many of the infrastructure projects.”