“We are going bankrupt in five years time”
“The government has no more money and we have RM500 billion of debt”
“Mismanagement and Corruption has made us poorer”
These are the routine statements you may have heard regarding the
state of the Malaysian government finances. But do they hold any water?
A while back, in Book 3 of the
259 Trillion Vs 5 Trillion Series,
my co-author and I have presented the calculations of the US Government
assets and compared them to the so called “mountain of debts” and found
out that the opposite was the truth, that the US has far more asset
than debt. People with their own agenda use half-baked statistics to
propel “unsuspecting” citizens to become angry and extremely emotional
toward their own governments, masking their true intention, which is
mostly for power grabs. As such, with such roaring emotional outburst
of various camps on small issues, I will try to dispel a few myths on
the Government of Malaysia. One should view things with brains and
facts and not on sensationalized half-truths and emotion.
I have dispelled the myth on the increasing price of Roti Canai in my
first Malay book,
complete with historical prices and charts. The conclusions was clear,
relative to Malaysians income level, the price of roti canai has
dropped significantly. We can’t blame the government for everything,
including the price of ordinary goods.
One such myth is the impending bankruptcy of the Malaysian
Government. One condition of being a bankrupt, is by having more debt
than asset.
The following is an extract of the statement from the Government’s
Accountant which, to a great extent, compounded the public’s perception
that the government is doing very poorly financially.
“The Federal Government assets disclosed in the Statement of
Memorandum Accounts only include Recoverable Loans RM95,493 million and
Investments RM27,194 million, whereas the liabilities comprised Public
Debt RM501,617 million and Other Liabilities RM276 million”. [Extract
from 2012 Federal Government Financial Statements report].
The statement clearly implies that the government is withholding
assets worth a mere 95+27 = 122 billion ringgit while the debt is now in
excess of 500 billion. But is it really true that the government’s
debts exceed its assets, or in other words, bankrupt?
In the government’s consolidated and unified balance sheet statement,
it was reported that the government was only holding a sum of RM27
billion in investments in select companies including that of Kumpulan
Wang Amanah Pencen (KWAP) as of the year 2012. Unfortunately it does
not seem to mention the real market value of these assets, which is of
many times greater.
Or take for instance that in the same report, it was mentioned that
the government’s holding of Petronas is only worth 99.99 million
ringgit. Everyone knows that Petronas is worth a lot more than this.
Fortune500 as well as Petronas itself, reported that it is worth as much
as RM521 billion as of Sep 2013 with an amazing 123 billion in an
essentially all cash assets!
The investments made into Khazanah Nasional Berhad, a well known
investing arm of the government, is worth only RM 5 billion according to
the government’s report, but Khazanah itself puts the figure of all of
its investments well in excess of RM134 billion, a really significant
sum. The government is simply aggregating the original money it
invested into these companies; however the actual marketable value of
these investments today is far larger.
To add to its burden, the government also listed the entire, I
repeat, the ENTIRE amount of money in the EPF, as its financial
obligation by way of government guarantees. That is worth about RM480
billion at the end of 2012! Now, this is a colossal amount to
guarantee, but the government explicitly guarantees the entire savings
of Malaysia’s future retirees. Not just the EPF will take care of your
retirement money, on top of that, the government itself guarantees it.
This is very similar to the banking system, where the bank guarantees
all deposits, and the PIDM insure the majority of the deposits in the
system while the government, although not being explicit, would
guarantee the entire system as well. [Note: as evident in 2009, the
government then had publicly provided an express written guarantee to
all deposits in Malaysian banks for a period of several years, without
any limitation on the deposited amount]
The total statutory financial guarantees extended by the government
is RM690 billion of which, as already stated earlier, 480 billion is due
to the guarantees to EPF. Bet that you have not heard that in the year
2011, the total financial guarantees of the government was in excess of
771 billion ringgit, thus recording a significant drop of about 80
billion in the year 2012.
Nobody has a clear figure just how much the total assets owned by
Malaysia Federal Government, but the total debt of the government (and
the deficit) is published widely. Currently the government owes as much
as 500,000,000,000 ringgit (that’s 500 billion ringgit to be exact).
It takes a while to dig the relevant data and study them, so here it is
for your consumption.
The reason why the government published a widely lower asset value
compared to the “current” value is largely unknown. When compared to
other governments, they also declared far lower asset value than they
actually holding. This accounting anomaly is probably a legacy of old
accounting standard which the government follows diligently. Few
corporations do the same to their balance sheet. Even the Federal
Reserve would publish its substantial gold holding at a mere USD35/oz
which is the official gold price set by the Nixon administration in
1970’s, instead of the current market price of 1,250 dollars per ounce.
The difference in numbers is huge, it means that the US Gov is
under-declaring its gold assets by a trillion dollars or more! Despite
every incentive to revalue the holding value for spending purposes and
credit worthiness purposes, the government has maintained its position.
Similarly in Malaysia, the government is also under declaring its
assets value, even if by re-declaring the value it would have gained a
significant political mileage. Yet the government is often accused of
manipulating and cooking the books, however I found no such evidence.
It is of little wonder that the Accountant General and those who
actually read and study the balance sheet of the government routinely
dismissed the critics of the government who would jump in no time (every
year in fact) on their same misleading figures and harp about the
impeding bankruptcy.
What does the government owns?
The government owns a significant chunk of the economic wealth,
locally and abroad. Take a look at its investment arm, Khazanah below,
you don’t have to see each individual company, just observe the scale
and breadth of the investments in many major companies, whether listed
in the stock market or not. Tenaga Nasional, the electricity producer
and distributor, Pos Malaysia, CIMB Group, the toll operator and owner,
PLUS, and many more such as ASTRO, UEM, Parkson, Axiata and Telekom are
all essentially owned by the government.
The total investments are worth in excess of 134 billion ringgit as
recently reported by Khazanah. The major GLCs are said to be having
annual revenue exceeding 400 billion a year, far outpacing the revenue
of the government itself.
The government also owns the following:
KWAP, Petronas, PNB, Tabung Haji, EPF, Bank Rakyat, Bank Simpanan and
a dearth of other companies and institutions. For the full list,
click here. Yes, National Feedlot Corporation or NFC is also listed inside. Well, not all of the investments make money as it turns out.
Now for the full total:
There are too many zeroes in the total, so in billion, that’s 1,157
billion ringgit, or 1.157 trillion ringgit! This is indeed, much larger
than the entire debt of the federal government of 500 billion. A
trillion is a number with 1 followed by 12 zeroes in it. Therefore the
Malaysian Government is actually far from being bankrupt and has
tremendous resources at its disposal.
The table above took into account as much as possible (but surely not
perfect) the portion of assets co-owned by others such as retirees’
monies in the EPF. Despite having a fund size of 480+ billion ringgit,
it is estimated that 105 billion ringgit is the true money of the
government, which it can manipulate by changing the payouts to the
retirees and from any yet to be declared profits. We can also argue
that 100% of the 480 billion is government controlled and owned, however
this may not be reflective of the financial standing of the
government. Similarly, within Tabung Haji for example, the government
has a portion totaling 48 billion ringgit, despite the institution
having a combined total customer deposit and government controlled money
of 90 billion.
The government also owns plenty of real estates, billions of ringgit
in fact. Due to time limitation, we can only guesstimate the total.
The 2012 report of the financial standing of the government also
mentioned that the government is holding some 29 billion ringgit in pure
cash in banks and other places.
Therefore, the frequent talks of the impending bankruptcy of the
government were just mere talks, without supporting facts. Now that you
know the real facts, you should not be easily swayed by those who want
to scare everyone for their own gain.
With more than a trillion ringgit in real assets, the government’s
wealth is no doubt, owned by the public, that is, you and the rest of
the populace. This mean that each person in Malaysia owns as much as
RM38,500 in economic wealth, held in trust by the government.
In terms of pure, cold hard cash, just how much the government is
holding, or able to obtain within a short notice? Based on the
following estimate:
That’s a lot of cash, which the government can muster in the time of
need. This amount is so large, it is more than 9 months of government
expenses. How many of you, saved this much money for expenses, just in
case? If 100 ringgit bills are stacked up on top of each other, it will
reach a high of 932 km (space is only 300 km above the earth) or if laid
next to each other, the bills would go around the earth four times.
The calculations also did not include the International Reserve of
Bank Negara for reasons stated in Book 3 of the series. The official
amount is in excess of RM400 billion, which is again, a really massive
number. The external debt of the federal government? It is less than
RM30 billion. Therefore there is almost zero chance the government
would or could be bankrupt anytime soon. Bank Negara Malaysia is also
capable of mustering unlimited amount of ringgit bearing papers if there
is ever a need to access cash quickly by the government. When I say
unlimited, it is really is unlimited, it can be multiples of many
billions or even trillions.
So the begging question now, if the government is so rich and have a
trillion ringgit worth of assets, then just how large and how rich
Malaysians combined personal wealth really is especially that they are
the true ultimate owner of the government itself?
Sharif Rahman is the co-author of 259 Trillion Vs 5 Trillion book series as well as several other books including one in the Malay language. He can be contacted at his email at author259tvs5t@yahoo.com
Readers of this
blog are well aware that IP valuation is very much a subjective
exercise, dependent significantly on the purposes of the valuation.
While most of the valuation methods rely significantly on the market
performance of the branded goods, some others attach significant
importance on the investment placed on the brand, i.e, entail a cost
approach. Within this prism, a significant investment on the brand
should inevitably add to its value.
