COMMENT The Sabah government recently declared that the controversial “bond” it issued in 2009 was part of its revenue in the state 2010 Budget.
Firstly be reminded that the state issued two bonds and not one. The earlier one was the RM500 million bond issued by the Sabah Development Bank. The second RM544 million bond was issued by the Sabah Ministry of Finance.
I’m just going to simplify the issue and focus on the RM544 million borrowed from the State Ministry of Finance.
What is a bond? A bond is a debt instrument.
A government bond is a government debt. It can't be much different from a commercial accounting system. If it's a debt it must be paid once it matures. Any payment will include the bond yield or interest.
Under normal circumstances, when the government treasury is in deficit, it’s only fair to think about reducing the deficit as soon as possible.
In our case, over the years we have not seen concrete efforts to improve revenue collection or to findnew resources of revenue.
Instead, we all know now that the easiest and most convenient way to get over a deficit is for the state to issue a government bond.
Hiding real deficit
The Sabah Ministry of Finance in 2009 initiated the issuance of government bond worth RM544 million, which is to mature in 2014 at a capped rate of 5%.
Amortisation of this bond requires the sabah government to pay RM615 million, with a monthly payment of RM10.27 million or RM123.24 million. Total cap-on will be RM71.96 million
Placing the debt in the revenue column is a trick, which makes the state government deficit expenditure look small.
This is a way of hiding the real deficit, which would otherwise be too huge to be in the picture and not sustainable
This method of accounting would serve as the easiest and convenient way to get new money.
In as far as Moody and Rating Agency Malaysia (RAM) is concerned, giving Sabah a triple “A” rating isn't really a big problem.
It’s not because of Sabah's capability or capacity. In fact, it is because of its available resources, which simply means Sabah has good asset -based collaterals.
In simple term, the whole state can and is good for “pawning off” or in local terms “pajak gadai”.
By default this means that the whole of Sabah can be put up for sale.
Questionable state
The United States can afford to use bonds to finance or balance its deficit. This is because the world has confidence in the country and it is also because the worldwide commerce is using US dollar as a medium of trade currency.
This is also the reason why the US government bonds is also called Treasury Bills.
But even then the use of the bond in the US has reached a critical point largely because of the size.
China, one of the US main trading partners, is already holding too much of the US bonds and this is one of the reasons why President Barack Obama went to India and Indonesia to find new markets for the US bonds.
If Sabah is as rich as claimed by Sabah Chief Minister Musa Aman, with a reserve of RM2 billion, why does the state need to raise this bond and give away the RM71.96 million for no reason?
The only plausible explanation is that the RM2 billion is fixed asset – not liquid cash. Therefore the bond is used as cash reserve meant for paying emoluments (a state governments needs eight months in reserves).
Don’t forget the state government has yet to pay more than RM1 billion on water bills to Jetama Air. This should give us some idea if the state government is financially sound as portrayed.
Wrong accounting
This is a wrong way of solving payment of emoluments. The Ministry of Finance has purposely exposed Sabah to unnecessary default risk, while there are no changes to the capacity and capability of the state institutions.
This confirms the view that the state is stagnating on purpose. The people are made to believe rhetoric and hang on to palliatives.
There’s no concerted effort to develop Sabah to be at par with the other states in the country.
By putting bond as revenue, Musa, who is also the State Minister of Finance, had deliberately lied to the people on the health of Sabah's revenue.
This is a wrong accounting practice.
The whole State Legislative Assembly has been deceived into approving the 2010 Budget without much debate.
Members of the State Legislative Assembly are either ignorant or not even aware of this deception.
Amde Sidik is a citizen journalist with CJ Malaysia and the deputy president of SAPP.
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