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THE prolonged Covid-19 pandemic has increased the government’s risk exposure in terms of support provided to entities in the services sector such as the public transport operators and highway concessionaires.

The situation demands the government increase the monitoring and evaluation of financial conditions of these companies, the Ministry of Finance (MoF) said.

The move is to quantify the risks and formulate mitigating measures to reduce its fiscal exposure, said the ministry.

As at end-June 2021, the Federal Government’s debt and liabilities exposure was estimated at RM1.33 trillion or 88.1 per cent of Gross Domestic Product (GDP).

Of the total, Federal Government debt amounted to RM958.4 billion or 63.3 per cent of GDP, committed guarantee stood at RM190.4 billion or 12.6 per cent of GDP, other liabilities were worth RM152.9 billion or 10.1 per cent of GDP and 1Malaysia Development Bhd’s (1MDB) obligations (outstanding debt) were at RM32 billion or 2.1 per cent of GDP.

It said government guarantees continue to increase, albeit at a much slower pace, as existing development and infrastructure projects are being carried out sparingly to catalyse recovery momentum while spurring economic activities amid the pandemic.

“The situation requires the government to further support economic activity through various stimulus and assistance packages, either from direct fiscal injection or non-fiscal measures such as special relief funds and micro-credit schemes as well as through quasi-fiscal instruments such as guarantee facilities for businesses.

“The current situation, where the pandemic is still unfolding and the provision of fiscal stimulus and assistance measures needs to be continued, has elevated the government’s risk exposure,” it noted.

Nevertheless, mitigating measures, in particular rigorous evaluation as well as continuous monitoring and adjustments of financials and debts, are implemented to reduce the impact of the exposure, it added.

The ministry said in the effort to contain the exposure of its liabilities, the government will continue to pursue recovery actions to mitigate risk exposure from 1MDB obligations.

Various recovery exercise, consisting of negotiations with related parties, legal proceedings and civil suits has enabled the government to reduce financial impact from 1MDB’s liabilities on the fiscal position.

A total of RM18.2 billion worth of assets linked to 1MDB has been seized or recovered and placed into the Assets Recovery Trust Account under the custody of the Accountant General’s Department, and as of September 2021, a total RM12.8 billion of 1MDB’s financial commitments and debt servicing has been paid up.

The outstanding balance of the trust account, which also earns placement profits (hibah), stood at RM15.3 billion. Other financial liabilities of the government include commitments under the Public Private Partnership (PPP) and Private Finance Initiative (PFI) projects as well as financing raised by PBLT Sdn Bhd to develop infrastructure projects for the Royal Malaysia Police.

As at end June 2021, one new project was added to the list of PPP projects, namely electronic land management system (e-Tanah) for Perak with a commitment of about RM249 million up to 2032.

The total outstanding cash commitments based on 98 PPP projects agreements from 2021-2047 were estimated at RM102.8 billion.

Liabilities under PFI projects are in the form of financing provided by the Employees Provident Fund (EPF) and Retirement Fund Incorporated (KWAP) to facilitate the implementation of infrastructure development projects, including  construction and refurbishment of schools, hospitals, universities and training centres as well as maintenance of government buildings.

As at end-June 2021, outstanding PFI liabilities were estimated at RM46.1 billion.

Meanwhile, as at end-June 2021, total outstanding government guarantees (GGs) stood at RM300.4 billion or 19.8 per cent of GDP, mainly attributed to new issuances by the Public Sector Home Financing Board (LPPSA) and Danalnfra Nasional Bhd to finance civil servants housing loan facility and ongoing public infrastructure projects, respectively.

More than half or 54.2 per cent of the GGs issued are for infrastructure-related financing, followed by services (26.6 per cent), investment holding (8.3 per cent), utilities (6.8 per cent) and others (4.1 per cent).

It said there is an increased risk from GG recipients especially entities operating in the services sector following the implementation of various movement control measures to curb the spread of Covid-19.

Turus Pesawat Sdn Bhd, a Minister of Finance Incorporated company that funds aircraft procurement for Malaysia Airlines Bhd, was classified as a committed guarantee, in line with its restructuring exercise, which involves funding from the government for debt repayment

The MoF said the government will continuously monitor the impact of the Covid-19 crisis on all GG recipients in assessing the risks of the entities requiring assistance from the government.

“Concurrently, the financial performance of the companies under committed guarantees is closely monitored while ensuring implementation of a recovery plan to reduce the risk exposure to the government.

“The entities will be removed from the list under committed guarantees once they no longer require financial assistance from the government,” it added.

Overall, the government is embarking on reforms to strengthen its fiscal discipline and enhance its governance, particularly in the management of state-owned enterprises, to minimise the risk exposure from possible distressed companies.