Other than Pembinaan PFI, what other off budget expenditure items is the government trying to hide?

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 18th of June, 2015

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.[1]

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, Datuk Haji Anwari bin Suri admitted that his office has not audited Pembinaan PFI Sdn Bhd because it was only included in the gazetted list under the AG’s office this year i.e. 2015. Even the PAC chairman 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 AG’s office because it was the third largest among government owned companies (after Petronas and Khazanah), it has never been audited by the AG’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% 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 chairman of the PAC noted this when he said:

“Good way jugalah itu avoid rating punya downgrade”

And the Secretary General of the Treasury, Tan Sri Dr. Mohd Irwan Serigar bin 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% 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% and 10.3% respectively. The government will ensure that the debt service charges will not exceed the threshold of 15% of total revenue under the administrative fiscal rules.”

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 Dato Dr. Mohd Isa bin 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 Ministry of Finance has to make annual payments of between RM4.76 billion to RM11.62 billion from 2015 to 2020 for interest payments of 9 Ministry of Finance owned companies including Pembinaan PFI Sdn Bhd.[2] If these payments are added to the debt servicing figure, then the 15% threshold may be breached!

(iv)              That the debts of Pembinaan PFI does not appear as 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 Dr. 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, Dr. 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 Malaysian sometimes.”

When else do the rating agencies know that Malaysian’s 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?

[1] http://portal.parlimen.gov.my/ipms/modules/risalat/res/risalat/2015/Laporan%20Jawatankuasa%20Kira-Kira%20Wang%20Negara%20Parlimen%20Ketiga%20Belas%20-%20Prosedur%20Kawalan%20Pengurusan%20Syarikat%20Pembinaan%20PFI%20Sdn%20Bhd%20(Kementerian%20Kewangan).pdf

[2] http://www.themalaysianinsider.com/malaysia/article/putrajaya-must-help-9-firms-pay-billions-annually-says-najib#sthash.BwxzFPcR.dpbs