Thursday, June 18, 2015

What other off-budget spending is being hidden?

11:24AM Jun 18, 2015
By Ong Kian Ming
MP SPEAKS I was both amused and horrified when reading through the Parliamentary Accounts Committee’s (PAC) Proceeding Reports on Pembinaan PFI Sdn Bhd which was released earlier this week.

Among the highlights of the PAC Report which are shocking are:

(i) The fact that Pembinaan PFI Sdn Bhd, which was allowed to accumulate RM27.9 billion in liabilities, has never been audited by the Auditor-General’s Office

In his testimony to the PAC, deputy head of the National Audit Department, Anwari Suri, admitted that his office has not audited Pembinaan PFI Sdn Bhd because it was only included in the gazetted list under the Auditor-General’s Office this year i.e. 2015. Even the PAC chairperson was amused when he heard this news. He said:

“Maknanya nak dekat 10 tahun baru gazet syarikat ini sebagai kena audit.”

So even though the total liabilities of Pembinaan PFI Sdn Bhd were noticed by the Audito-General’s Office because it was the third largest among government owned companies (after Petronas and Khazanah), it has never been audited by the Auditor-General’s Office.

(ii) The fact that the expenditure incurred by Pembinaan PFI was structured as an off-budget item to ensure that Malaysia’s government debt to GDP ratio was less than 55 percent so as to avoid a ratings downgrade.

The money borrowed by Pembinaan PFI Sdn Bhd was used for the construction of buildings such as schools, hospitals and other government infrastructure projects.

This expenditure should have been classified under development expenditure. But because the government did not want to book this spending under development expenditure, it shifted this spending to operating expenditure whereby the interest payments incurred by Pembinaan PFI could be spread out over time.

The chairperson of the PAC noted this when he said:

“Good way jugalah itu avoid rating punya downgrade.”

And the secretary-general of the Treasury, Mohd Irwan Serigar Abdullah, agreed with this view when he said:

“Ini Tuan Pengerusi, your understanding it very clear. That you know this is off-budget. It doesn’t come in to the government so that why you know our debt level and rating and everything we can maintain.”

(iii) The fact that the interest payments of Pembinaan PFI Sdn Bhd is classified under ‘other payments’ rather than under debt servicing in order to show that our debt servicing levels are still manageable.

According to the 2014/2015 Economic Report, debt service charges in 2014 are estimated to increase 11.6 percent to RM23.2 billion from 20.8 billion in 2013. The report further stated that “as a percentage of total operating expenditure and revenue, debt service charges remain stable at 10.5 percent and 10.3 percent respectively. The government will ensure that the debt service charges will not exceed the threshold of 15 percent of total revenue under the administrative fiscal rules”.

Under ‘other payments’, not debt servicing

However, the PAC report has revealed that the servicing of Pembinaan PFI’s debt does not come under debt servicing but other ‘other payments’. This was confirmed by Mohd Isa Hussain, the secretary of the Companies Investment Section of the Government (Setiausaha Bahagian (Syarikat Pelaburan Kerajaan).

This is very worrying since it was revealed recently that the Finance Ministry has to make annual payments of between RM4.76 billion to RM11.62 billion from 2015 to 2020 for interest payments of nine Finance Ministry-owned companiesincluding Pembinaan PFI Sdn Bhd. If these payments are added to the debt servicing figure, then the 15 percent threshold may be breached!

(iv) That the debts of Pembinaan PFI do not appear as a contingent liabilities because there is no government guarantee in order to hide the overall indebtedness of the government.

Not only are the debts and expenditure of Pembinaan PFI an off-budget item, they do not appear as a contingent liability since there is no government guarantee for its debts. Even part of the loans of 1MDB are government guaranteed (RM5.8 billion) and as such appears on the list of contingent liabilities which totalled RM157.5 billion at the end of 2013. But you will not find the debts of Pembinaan PFI appearing anywhere on the list of contingent liabilities.

As stated by Irwan: “This is not part of contingent liabilities. There is no GG, no government guarantee.”

This is a very ingenious or perhaps disingenuous way of ‘hiding’ government expenditure and debt.

(v) What else is the government hiding from us?

The secretary-general of the Treasury, Irwan, testified in the hearings to the PAC that foreign rating agencies such as Standard & Poors and Moody’s know about the debts of Pembinaan PFI. In fact, he testified that “Everything they know. Our contingent liability - they know more than Malaysians sometimes”.

What else do the rating agencies know that Malaysians don’t? Is the Treasury revealing information to foreign rating agencies which it is not disclosing in Parliament or even to the cabinet as a whole?

ONG KIAN MING is the MP for Serdang.
~ Malaysiakini

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