Property Insight > Strategy > Do We Really Have RM1 Trillion In Debt? What Does This Mean To You, Me & Property Investors?

Do We Really Have RM1 Trillion In Debt? What Does This Mean To You, Me & Property Investors?

There has been a lot of talk lately about whether our national debt is RM 1 trillion or whether it should follow “international reporting standards” of RM705 billion.

I would like to offer a technical and accounting explanation of how the RM1 trillion was derived. P.S. – This post is not for the faint-hearted and I have kept it as politically neutral as I can.

  • 1st Component – Official Government debt = RM705 billion as of March 2018 (Source:- Bank Negara Malaysia)
  • 2nd Component – Government guarantees of RM199.1 billion are then added to the broader definition of national debt. Make no mistake about it folks – they are no longer contingent or “possible” liabilities that are just supposed to be disclosed. For example, a non-revenue entity like Dana Infra can’t pay its debt so the Federal Government has to foot the bill, no matter what.
  • 3rd Component – Many have argued that lease payments of  RM201 billion are just operating expenses (OPEX) that should not be a part of Federal Government debt. Hello? The technical definition of a liability is the “Future sacrifice of economic benefit that an entity is required to pay”. RM201 billion sounds like a pretty big sacrifice to me. An expense can’t exist without a liability or a reduction in assets.
  • Mental theorists are therefore saying that official “standards” classify debt at just RM705 billion (point # 1). However, with all due respect, that’s deeply missing the point. Our broader but absolute debt commitment is > RM1 trillion (Sum of points # 1 to 3), because it fits the accounting definition of a liability. That’s circa 80% of Gross Domestic Product (GDP).
  • Let’s say my critics still insist that Government debt should just be the “official standard” of RM705 billion. Well, in 2018, RM30.9 billion will be spent on debt PAYMENTS alone. This is equivalent to 96% of our RM32 billion income tax revenue and 71% of our RM44 billion GST Bill. And, that’s mind-boggling!

FOLLOW THE INFRASTRUCTURE? OR FOLLOW FISCAL RESPONSIBILITY?

Why do you think the powers that be are relooking the various mega projects and scrapping things like the RM110 billion High-Speed Railway (HSR) project?

Dear Property Investors – The phrase “Follow the Infrastructure” is heavily overrated. It is now time to “Follow Fiscal Responsibility”.

I now wonder what will happen to developments that have promoted their proximity to the HSR.

If you want to be one step ahead of the crowd, don’t just do a one-dimensional area analysis or merely study property projects. Spend time analysing the state of our Nation’s financials, Budget and policies as well. This will have a direct impact on future development and priorities.

For the record, I have nothing against mega projects – but economic benefits must be clearly spelt out and balanced against our debt situation. Let us ask the following questions when we evaluate so-called “Infrastructure” projects.

  • Is the 350km HSR project economically viable? What sort of ridership and load factors are we looking at? And, what is the expected payback period?
  • What would be the pricing of a two-way HSR ticket? Today, a two-way ticket from Singapore to Kuala Lumpur costs circa RM400 via a low-cost airline. Would a HSR ticket be substantially cheaper?
  • What are the opportunity costs of the RM110 billion HSR project? Can the RM110 billion be better deployed elsewhere? So, why not invest in a world-class education system? Why not invest in value-added industries like Biotech, Fintech or Artificial Intelligence? Why not use it as incentives for multinationals to open logistics or manufacturing hubs?

In all humility, let’s not engage in mindless semantics and squabbles on whether “official” debt should be RM700 billion or RM1 trillion. Whatever it is, problems may arise in the form of unsustainable interest payments. As an afterthought, do you think we can still spend money like Paris Hilton and Jho Low?

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