THE government is taking a more prudent and transparent approach by disclosing committed guarantees as a component of the Federal Government debt and liabilities reporting.
Committed guarantees are part of financial guarantees which consist of recipients that receive financial support from the government under extenuating circumstances to sustain ongoing projects and programmes, either in the form of temporary cash flow injection, working capital or partial interest repayment.
As at end-June 2024, committed guarantees have marginally increased to RM231.4bil as compared to RM227.4bil as at end-2023, mainly contributed by higher financing needs for construction of the East Coast Rail Line project which has progressed rapidly, reaching 67% of completion.
The marginal increment of committed guarantees indicates enhanced fiscal discipline and improved governance in reigning risk exposure arising from financial guarantees.
Other liabilities include financial commitments originating from the implementation of the public private partnership (PPP) and private finance initiative (PFI) projects as well as obligations related to PBLT Sdn Bhd.
PBLT was established in 2005 with the mandate to execute the implementation of projects aimed at improving the welfare of the police force.
PBLT has completed most of its projects and has almost paid off its outstanding sukuk obligation. As at end-June 2024, the outstanding obligation of PBLT was at RM0.6bil.
These commitments and obligations represent alternative funding mechanisms adopted by the government to support the national infrastructure development agenda.
Meanwhile, the PPP model represents a collaborative approach between the public and private sectors, whereby a stand-alone business entity is established, financed and operated by the private sector to undertake infrastructure projects, acquire assets, or render services to the government and the public.
This partnership is defined under an agreement to determine various deliverables such as investment proportions, risk distribution, contractual responsibilities, shared benefits and level of service requirements.
The government employs two distinct PPP models, constituting the user-pay model, which is fully funded by the private sector, and the co-financing model, which involves contributions from both the government and private sector.
As at end-June 2024, total outstanding financial commitments, which account for 104 PPP projects under the co-financing model, recorded an increase of 7.8% to RM93.5bil (2023: RM86.7bil).
The increase in PPP commitments is attributed to the concession renewal of medical supplies and consolidated emergency call service platform.
Separately, the PFI was introduced to support the government’s efforts to sustain the national development objectives amid the economic downturn in 2008.
Under this initiative, funding was provided for projects and programmes related to public utilities, education, affordable housing, skills development and maintenance of government facilities.
Funding for PFI is sourced from the Employees Provident Fund and the Retirement Fund (Incorporated) which the government, in turn, is liable for the financial commitment.
As at end-June 2024, PFI financial obligations were recorded at RM43.8bil (2023: RM44.7bil).
Meanwhile, managing the risk arising from financial guarantees is crucial in ensuring fiscal sustainability and economic stability. Thus, the government will continue to prioritise the identification, assessment and implementation of mitigation measures for risks associated with public finances, particularly committed guarantees, PPP and contingent liabilities.
Among bold steps taken by the government includes the enactment of Act 850 (of the Public Finance and Fiscal Responsibility Act 2023), whereby the obligation to manage fiscal risks is institutionalised in a formal framework.
In managing financial guarantee, Act 850 broadens the interpretation of guarantees, mandates the publication of guidelines in managing guarantees which outlines the responsibilities of the minister, and for the first time, imposes a threshold on guarantees by the government at 25% of gross domestic product.
Furthermore, Act 850 empowers the establishment of a new sub-committee, namely Fiscal Risk, Debt and Liability Committee to enhance the governance on risk management.
In addition, the government recently announced a new policy document on PPP, the Public-Private Partnership Master Plan 2030 (Pikas 2030) to enhance the management of PPP projects and programmes.
