Beyond the federal budget: Following billions in government-backed debt

 

This story is supported by Pulitzer Center

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The federal government’s 2024 financial statement listed 21 companies with about RM230 billion in outstanding government-guaranteed debt.

Some finance major public infrastructure projects. They include special-purpose vehicles, statutory bodies, and government-linked companies.

Instead of the government paying the full cost of a railway, highway, aircraft or other project directly from an annual budget, a government-linked entity can borrow the money, and the federal government can guarantee the loan.

The guarantees are recorded annually in the federal financial statements as “statutory guarantees”, but the loan itself sits with the company.

For some companies, the government’s exposure goes further.

Their loans are recorded as “guarantee commitments” - obligations for which the federal government says it must provide allocations to repay the guaranteed borrowing.

The government defines guarantee commitments as loans taken by government-linked companies and statutory bodies, secured by the federal government, which have consequently become its obligations.

RM230 billion in government-guaranteed debt

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According to the accountant-general, the federal government’s financial commitments increased by RM3.78 billion in 2025 to RM300.95 billion.

The increase was driven mainly by higher guarantee commitments for DanaInfra Nasional Bhd and Malaysia Rail Link to meet additional financing requirements for strategic infrastructure projects.

Political economist Edmund Terence Gomez said understanding these financing arrangements requires tracing where the money comes from and how it is repaid.

“You have got to look at exactly what they call the cash flow. 

“Where is the cash coming from and how is it being paid off? Those are the things that really tell you the whole story,” Edmund (above) said.

Not all government backing is a guarantee

A formal government guarantee 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 (SPV).

One was Timeline Zone Sdn Bhd, which Treasury officials described to Parliament’s Public Accounts Committee as a 1MDB SPV.

In March 2015, Timeline Zone obtained a US$150 million term loan from Exim Bank Malaysia.  The auditor-general valued the loan at RM645.6 million.

It was backed by a government letter of support.

The loan had a 15-month term and was scheduled to mature in June 2016.

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

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Another example is highway concessionaire Plus Malaysia Bhd.

Plus 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.

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

Some companies in the system operate as financing vehicles, borrowing with government backing to finance projects or obligations elsewhere.

In some cases, the recipient can itself carry a federal guarantee.

Govco Holdings Bhd, for example, raised financing that flowed to Felda. Both separately carried federal government guarantees.

Billions paid to meet loan obligations

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. These funds were taken from federal government operations and development allocations.

The auditor-general has repeatedly raised concerns about risks associated with government guarantees.

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Those concerns included companies relying on government assistance to repay debt, increasing guarantee commitments, and borrowers whose ability to service their obligations depended heavily on continued government support.

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.

Government guarantees therefore show only one part of the financing structure.

Determining where the financial obligation ultimately sits requires tracing the borrowing, the government backing and subsequent federal payments.

Public disclosure of that trail is limited. - Mkini