KUALA LUMPUR (THE STAR/ASIA NEWS NETWORK) - Malaysian Finance Minister Lim Guan Eng this past week revealed the scale of the nation's debts. He said national liabilities and debt have breached not only the RM1 trillion-mark (S$336 billion) but also reached 80.3 per cent of gross domestic product.
Apart from a higher national debt, the new government faces a loss of revenue from the abolition of the goods and services tax (GST). The GST is to be rated a zero from June 1 and will see a shortfall in revenue that will be only plugged once the sales and services tax (SST) is introduced later this year.
But investment circles feel that the government does have many options, some bold and creative, for it to raise finances to cover not only the revenue gap but also reduce government debt.
Saudi Arabia during the depths of the oil crisis recently proposed to float the country's jewel - Saudi Aramco. The listing of five per cent of the world's most secretive and largest oil company could raise US$2 trillion (S$2.68 trillion) for the kingdom.
A listing of Petronas, which made a profit of RM45.5 billion last year when oil prices were much lower than now, can raise between RM600 billion and RM800 billion, depending on the valuation the company seeks from investors in an initial public offering (IPO).
"A disposal of a 25 per cent stake in Petronas during a listing exercise will easily raise between RM150 billion and RM200 billion for the government," says an investment banker.
A listing of Petronas, apart from generating cash to repay the country's debt, will also address the oil royalty issue that is a quagmire between the government and the states where oil is produced.
"The states can have a share in Petronas and then can receive the dividends that Petronas declares. This will also solve the problem of Sarawak wanting to set up its own version of Petronas," he says.
Another idea floated is establishing a national land company, much along the likes of Singapore's Urban Redevelopment Authority. Federal-owned land can be put into a trust or into a company that can be listed. Money from an IPO would raise cash for the government or a private trust can sell the land to developers to raise a steady stream of cash.
"That way, we can have regulated development and land that can be put up for sale through open tender," he says.
The banker says that there would not be abuses of land sales such which is quite prevalent now.
"We won't have cases of politicians disposing of land or buying it for their personal gains," he said.
The national land company would be easily worth billions, depending on the properties that are put into the company.
Another avenue is the establishment of a government real estate investment trust (REIT). The investor says that buildings in Putrajaya can be put into a gigantic REIT that can then be floated to raise cash for the government.
He estimates that the proposals, if executed, can raise between RM1.5 trillion and RM2 trillion, which can effectively pay off the government debt.
There is rising anxiety that rating agencies and international investors are getting cold feet over the size of government liabilities. The government has said that it would honour its debt obligations and stressed that the economy is in good health regardless of the federal debt.
Malayan Banking Bhd group chief economist Suhaimi Ilias says there are mitigations to revenue loss from the GST zero-rating such as upsides to oil-related income, given global crude oil prices that are now higher at an average of almost US$70 per barrel year-to-date compared with the Budget 2018 forecast of US$52 a barrel.
The SST re-introduction, depending on whether this would be the same as previously in terms of SST rates and base, will be another source of income generation.
"These also can - and need - to be complemented by the spending side of the budget equation as well, given that there are also costs from populist Pakatan Harapan election promises like bringing back fuel price stabilisation/subsidies; the deferment in the National Higher Education Fund Corp (PTPTN) loan repayment which affects the financing of the PTPTN for future batches of students; and the abolition of highway tolls.
Suhaimi says adjustments in spending from a smaller Cabinet, ministerial salary cuts, the termination of political appointees, the abolition of agencies like the Land Public Transport Commission and the National Professors Council, reviewing or putting an end to direct negotiation contracts and going for open tender would be essential.
"So, it will be a combination of GST-revenue-offsetting measures and spending rationalisation."
Socio-Economic Research Centre executive director Lee Heng Guie says that when it comes to revenue reforms, the design of the tax policy should be fair and equitable in order to be sustainable.
"The push for wide and investment-friendly reform to boost potential growth should be expedited, as strong investment and economic growth has a huge effect on enhancing revenue growth and reducing public debt," he says.
On budget planning and development, he says an oversight body needs to be set up to ensure better fiscal rules, budgetary processes and closer fiscal monitoring to ensure fiscal discipline.