RM1 trillion is a humongous amount of money. Sadly, that is what our government debt is.
Like it or not, assets must be sold to manage this debt. This strategy has been made public by Prime Minister Tun Dr Mahathir Mohamad in April. But timing isn’t exactly on Malaysia’s side.
Two things are happening more or less simultaneously: protracted trade tensions between the United States and China, and economic volatility at the global level. If analysts are right, the mini-boom of the last few years is not going to return any time soon.
A United Nations briefing last month on world economic prospects puts it thus: “Persistent uncertainty surrounding trade actions has induced heightened investor risk aversion and financial market volatility. In many countries, there are signs that the deterioration in business confidence has started to dent investment growth.”
It follows up with this warning to the three major economies of China, the United States and Europe: higher tariffs and prolonged weak sentiments could significantly dampen domestic demand growth. Malaysia is put on notice too. Because our economy has a high exposure to these large markets.
The dark days are already reflected in the financial results of our funds. The Employees Provident Fund, announcing its first quarter results for 2019 ending March in May, reported a lower investment income: RM9.66 billion. The fund had a better result a year earlier for the corresponding quarter: RM12.88 billion.
Khazanah Nasional’s story is of a similar narrative. A quick review of its 2018 performance reveals what economic volatility can do to even funds with big money. For the year ended Dec 31, Khazanah’s portfolio value, as measured by its net worth adjusted (NWA), declined to RM91 billion, a 21.6 per cent drop from RM116 billion of the previous year. Realisable asset value also declined to RM136 billion from RM157 billion during the same period.
There is, however, one good news: the fund’s NWA clocked 11.0 per cent return per annum over the last 10 years.
Be that as it may, selling of government assets isn’t a bad idea, says Tan Sri Ramon Navaratnam, a seasoned hand in the public sector. Cautioning against formulating general rules for the sale of such assets, the economist says any such sale must be done on certain conditions.
Ramon, who was once a deputy secretary-general of Treasury and secretary-general of the Transport Ministry, says strategic assets should not be sold to foreigners because it will be unwise to lose control of them. But he is not averse to selling some to them, especially where we require their expertise. In such situations, he recommends an equity of between five per cent and 10 per cent. Space industry is one such example.
Ramon reminds the funds — as holders of government assets — to be as inclusive as possible when it comes to selling them. No community must be left behind. A not-so-commercial concern maybe, but it is on such noble principle that an equitable society is built. Wealth isn’t just for some. It must be for all. To him, this is one path to shared prosperity. Thus must capitalism be made compassionate.