Who decides on government guarantee for billion-ringgit off-budget loans?

 

The federal government has guaranteed hundreds of billions of ringgit in loans by government-owned companies and statutory bodies to finance infrastructure, development projects, and other obligations.

However, these loans do not appear in the annual budget, even though the federal government could ultimately be on the hook if the companies borrowing them could not pay up.

In such situations, they are classified as "guarantee commitments", which the federal government says it must allocate funds to repay.

In 2025, the accountant-general reported that the national administration's financial commitments had risen to RM300.95 billion, largely driven by loans taken by DanaInfra Sdn Bhd and Malaysia Rail Link (MRL) to meet additional financing requirements for infrastructure projects.

The financing trail raises the question of who has the authority to put the government behind the borrowing.

Who has the power?

Part of the answer lies in the laws governing the Finance Ministry and government guarantees.

The Minister of Finance (Incorporation) Act 1957 establishes the minister responsible for finance as a body corporate under the name "Minister of Finance".

The Act gives the corporation powers to enter contracts and to acquire, hold, transfer, charge, mortgage, and otherwise deal with movable and immovable property.

In other words, MoF Inc’s legal ownership rests with the office of the finance minister, rather than with a separate corporate board.

Political economist Edmund Terence Gomez described MoF Inc as a central holding structure through which the finance minister can exercise substantial influence over government companies and appointments.

His research examines how ownership, legislation, directorships, and other mechanisms give the government significant influence over government-linked companies and investment companies.

Gomez argued that ministerial appointment power can create a chain of influence from the minister to the chairperson, board, and management.

“So power is concentrated in the hands of the finance minister, who will give the cue to the chairperson, and the chairperson will instruct the board of directors and the management of these companies to do certain things.

“The finance minister is very powerful, and he would control the government-linked investment company called the MoF Inc, which is basically the primary holding company for the government,” Gomez (below) explained.

That concentration of power would come under scrutiny during the 1MDB scandal.

In May 2018, then finance minister Lim Guan Eng said Treasury officials involved in payments on behalf of 1MDB had faced “all sorts of pressures” but had protected themselves by obtaining written authorisation for their actions.

As Gomez put it: “Where does the power lie? Who decides? Who has ultimate decision-making control? That is the question.”

Government-backed financing vehicles

Official records show that between 2009 and 2018, several government-owned financing vehicles were set up to raise billions in government-guaranteed borrowings.

They include 1MDB, Govco Holdings Bhd, DanaInfra, SRC International Sdn Bhd, MRL, Suria Strategic Energy Resources Sdn Bhd (SSER), and Sentuhan Budiman Sdn Bhd.

In May 2009, the government, represented by then second finance minister Ahmad Husni Hanadzlah, signed a government guarantee for a RM5 billion sukuk issuance that became 1MDB's first federally guaranteed debt.

A formal government guarantee, however, is not the only mechanism used to back borrowing.

The 1MDB group used three forms of government backing: government guarantees, letters of support, and standby credit. The instruments were extended to subsidiaries and special-purpose vehicles (SPVs).

In March 2015, Timeline Zone Sdn Bhd, a 1MDB SPV, obtained a US$150 million term loan from Exim Bank Malaysia, valued by the auditor-general at RM645.6 million and backed by a government letter of support.

Another example is highway concessionaire Plus Malaysia Bhd, which has a RM25.2 billion sukuk programme supported by an irrevocable and unconditional government letter of undertaking covering specified cash shortfalls.

Malaysian Rating Corporation said the undertaking justified a two-notch uplift to Plus' credit rating.

Government guarantees, letters of support, and other backing instruments are not legally identical and do not necessarily appear in the same ledger.

The different forms of government backing meant formal guarantees alone do not capture every form of federal financial exposure.

What does Parliament get to see?

The Loans Guarantee (Bodies Corporate) Act 1965 (Act 96) allows the government to guarantee loans by designated companies and statutory bodies.

The guarantee can be signed by the finance minister or someone authorised by the minister, provided that the minister tables the statement of guarantee and a copy of the agreement in Dewan Rakyat as required by Section 2 of the Act.

However, Act 96 contains an exception to this disclosure requirement.

Section 2(4) allows the minister to withhold the statement and agreement from Parliament if the minister certifies that they contain confidential matters, and the exemption lasts as long as those matters remain confidential.

In other words, the minister does not have to disclose them while matters in the guarantee or agreement are confidential.

There is another parliamentary safeguard under Section 8 of the Act.

If the government dips into the Consolidated Fund to pay out on an Act 96 guarantee, the borrower becomes liable to repay the government and the finance minister must report those payments to the Dewan Rakyat each year until the liability is settled.

How much can the public see?

Bernadine Fernz, head of Asia at the Open Contracting Partnership, a global nonprofit focused on public procurement, said the minimum test for transparency in procurement was remarkably simple: “Who bought what, from whom, at what price, and when?”

Fernz said: “The rule of thumb should be, it needs to be transparent, across the board, because it’s public money and therefore public interest.

“It could be that everything was above board and done perfectly, but because we don't know, we can’t assess it,” she said.

Transparency International global chair François Valérian (above) made a similar point about government-backed borrowing, arguing that the practice itself was not the issue but rather the lack of transparency.

“There is nothing to say about the practice itself. The point is that it has to be public.

“Because citizens may ultimately be the ones who reimburse in 10 years, or in five years, or in six months.

“Being as flexible as a private company, and as opaque as a public sector. So that's where things start to go wrong, right?” he asked.

Not all debt treated the same

Government-guaranteed borrowing also needs to be distinguished from federal government debt.

At the end of 2023, total federal government debt stood at RM1.173 trillion, equivalent to 64.3 percent of GDP.

However, the 65 percent statutory debt limit did not apply to all federal government debt. It covered three debt instruments: Malaysian government securities, government investment issues, and Malaysian Islamic treasury bills.

Debt under those instruments stood at 62.1 percent of GDP in 2023.

Government-guaranteed borrowing by companies is accounted for separately.

In 2023, the auditor-general reported that RM24.2 billion was provided to 12 of 13 companies with guarantee commitments to meet their loan obligations.

The auditor-general has repeatedly flagged the government’s guarantee commitments and the financial position of companies requiring government assistance to meet their loan obligations.

The same report identified particularly large outstanding guaranteed borrowings involving DanaInfra, Prasarana Malaysia, and MRL.

Together, the three accounted for about RM165 billion that year. - Mkini