THE global economic landscape remains vulnerable due to policy uncertainties across the globe, persistent geopolitical tensions as well as volatility in commodity prices and financial markets, posing downside risks to the growth outlook.
Notwithstanding domestic market dynamics, Malaysia is also susceptible to external challenges, underscoring the importance of prudent fiscal risk management by the government.
Cognisant of the potential risks, the newly enacted Public Finance and Fiscal Responsibility Act 2023 (Act 850) provides a comprehensive framework for fiscal risk mitigation to safeguard fiscal health.
The fiscal risk framework addresses the critical aspects of public finance particularly debt management, transparency as well as governance of contingent liabilities.
Notably, the government has enhanced the disclosure of guarantees with a broader definition of financial guarantees.
In addition, a new framework for public-private partnership as well as guidelines to govern quasi-fiscal entities has been introduced, in line with the aspirations of the Madani Economy towards achieving a balance between economic expansion and fiscal discipline with a whole-of-nation approach.
Since 2019, the country has committed to transparency and disclosure of government debt and liabilities, in line with the standards and statistical treatments outlined by the International Public Sector Accounting Standards and the International Monetary Fund’s Public Sector Debt Statistics.
The overall liabilities exposure consists of the government’s debt, committed guarantees and financial commitments arising from public-private partnership, private finance initiatives and commitments under PBLT Sdn Bhd.
As at end-June 2024, total debt and liabilities amounted to RM1.6 trillion, representing 82.1% of gross domestic product (GDP).
The government plays an instrumental role in the economic and infrastructure development of the country which requires significant investment.
Principally, public goods such as education, health, security and social welfare are directly funded from fiscal resources.
Meanwhile, quasi-fiscal instruments are utilised for strategic infrastructure projects including joint development by both public and private sectors, as well as financing programmes for socio-economic development.
These arrangements possess advantages as it not only eases the burden on public finances but also improves delivery efficiency through private sector participation.
Under the newly enacted Act 850, the definition of financial guarantees is introduced to include guarantee instruments issued under four Acts namely, Financial Procedure Act 1957 (Act 61), Loans Guarantee (Bodies Corporate) Act 1965 (Act 96), Loan Guarantee Act 1963 (Act 412) and Loan Guarantee Act 1972 (Act 66).
These financial guarantees are discretionary guarantees deployed by the government to meet the funding requirements of selected infrastructure projects and various financing programmes.
Thereby, investors’ confidence will be boosted, attracting private sector participation in funding large- scale infrastructure projects and other strategic investments that have significant socioeconomic benefits.
Financial guarantees stood at RM407.8bil or 20.9% of GDP, lower than the 25% threshold stated under Schedule 1 of Act 850.
The first component of Financial Guarantees is a guarantee issued under Act 96 where the entity receiving the government guarantee for financing raised is gazetted as body corporate under this Act.
