This article was first published in the July 2018 China edition of Accounting and Business magazine.

Up until 20 May, the government’s debt meant very little to most Malaysians. At best, the average Joe had an inkling of its size. A reasonable guess would be that the IOU note was in the billions, but surely it was nothing to worry about because the leaders had not said much about it.

But there has been a change of government. In the 9 May general election, the Pakatan Harapan coalition was swept into power and the new administration has had no qualms about highlighting the full extent of Malaysia’s debt. On 21 May, Prime Minister Tun Dr Mahathir Mohamad stated that these exceeded RM1 trillion. He described this as a challenge that must be overcome with our ‘efforts and ideas’.

The details came three days later via a media release from Finance Minister Lim Guan Eng, who confirmed that the federal government’s debts and liabilities as at 31 December last year amounted to RM1.087 trillion or 80.3% of the GDP, the bulk of which was the federal government debt of RM686.8bn (50.8% of GDP).

What is particularly interesting is that the new government has included two other liability components to arrive at RM1 trillion. The first is labelled ‘committed government guarantees’. These relate to almost RM200bn of debts incurred by certain government-linked entities for which the federal government is a guarantor. According to Lim, the government is already committed to honouring the guarantees because these entities cannot service their debts.

The second liability component comprises lease payments (including rental, maintenance and other charges) for public-private partnership projects for the construction of government assets such as schools, hostels, roads, police stations and hospitals. The minister claimed that these commitments, amounting to RM201.4bn, were ‘designed specifically to circumvent the federal government guarantee and debt limits’. Recognising the true debt situation, he added, would  enable the government to take concrete actions to regularise and strengthen its financial state.

The stock market has been sensitive to talk of a debt overhang. However, there was no rush among the rating agencies to downgrade the country’s sovereign rating. Other observers appear calm as well. ‘As long as the economy is growing at a healthy pace of above 5%, Malaysia should be able to service its debt,’ said the research arm of Alliance Investment Bank in a 30 May report.

The tightening of public spending is a must, though. The government has shelved a few megaprojects and is likely to do the same for a few more. Some agencies have been closed down and many contracts have been terminated. Pakatan Harapan says some of its campaign pledges are on hold until the finances improve.

However, the post-election goodwill continues to radiate, with the government setting up a special trust fund for donations. More than RM18.6m was collected in less than 48 hours. That is a clear vote of confidence.

Errol Oh is executive editor of The Star