Penang’s debt reduction, a tale of prudence

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This is in response to the news ‘Don’t proceed with Penang dam project until Guan Eng says sorry, says Najib’ (Free Malaysia Today, 10 January 2021).

Dato Seri Najib Razak claimed that Penang’s debt reduction was due to Barisan Nasional federal government’s giving “free grant for the Mengkuang dam worth RM1.2 billion and converting the state’s debt into annual instalments,” following the federal-state water restructuring deal in 2011.

How the debt conversion works is by requiring the state government to transfer water-related assets to the federal government, and in return the assets are leased back to the state government for annual payment for 45 years.

Najib then casted doubt over the DAP-led state government’s economic prowess and accused former Penang Chief Minister, Lim Guan Eng for propagating “fairy tales of reducing state’s debts.”

This accusation against Penang government is not new, aggressively circulated by BN machinery in 2017, in preparation for GE14.

To know whether who is telling fairy tales is very simple, by comparing Penang with the other six states that participated in the water deal from 2008 to 2016. We just need to compare each state’s debt before entering the water deal and the amount of leftover debt in each state by 2016. Attached is the table for reference.*

As seen in the table, the debt conversion does not guarantee low state debt over a sustainable period. The two obvious examples are Johor and Kelantan.

Johor received the highest debt conversion of RM4,030 million, which was three times more than the state’s debt of RM1,010 million. If the debt conversion guarantees sustained low debt, then Johor shouldn’t have any debt at all. However, by 2016, Johor had accumulated RM413 million of debt. Clearly, the water deal’s debt conversion does not guarantee low state debt over a sustainable period.

Kelantan’s debt was RM1,354 million before the water deal. The state’s debt conversion was RM604 million. Again, if the debt conversion guarantees sustained low state debt, then Kelantan’s debt should be (RM1,354mil – RM604mil = ) RM750 million. But that is not the case. Just one year after the debt conversion, Kelantan’s debt increased by 3% to RM1,396 million. Again, clearly, the water deal does not guarantee low state debt over a sustainable period.

Longer duration in the water deal also does not guarantee high debt reduction and low state debt. Despite being the first to enter into the water deal, Melaka had only managed to reduce debt by 23%. So, clearly, the debt conversion does not guarantee low state debt even over a longer timeframe.

Out of the seven states participating in the federal-state water deal, Penang’s debt reduction rate is the highest, at 91%, over a sustainable period.

So, why is Penang’s debt remaining low over a sustainable period? I think it goes back to the state government’s prudence and economic prowess.

I have already explained this in 2017, but BN still repeating this misleading claim.

Reference

*Data of state debt are taken from Auditor-General Reports: Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Melaka Tahun 2007, p.vi; Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Sembilan Tahun 2008, p.31; Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Johor Tahun 2008, p.34; Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Perlis Tahun 2009, p.xiii; Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Pulau Pinang Tahun 2010, p.32; Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Perak Tahun 2011, p.28; Penyata Kewangan Kerajaan Negeri Dan Pengurusan Kewangan Jabatan/Agensi Negeri Kelantan Tahun 2015, p.xi.

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