The State Of The Nation: When Petronas dividends are not enough to cover the government’s interest payments

This article first appeared in The Edge Malaysia Weekly on February 20, 2023 – February 26, 2023

MALAYSIA is blessed to have Petroliam Nasional Bhd (Petronas) for it generates strong cash flow to bolster federal government revenue and budgets year after year.

According to Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim, debt service charges are likely to reach RM46 billion, or 16% of federal government revenue in 2023 — that’s RM11 billion or 31% higher than the RM35 billion in dividends from Petronas that was pencilled in in the past Budget 2023, tabled by the previous administration last October.

This is not the first year Petronas dividends have been insufficient to cover the federal government’s annual interest payments on its direct debt pile that hit RM1.08 trillion as at end-2022. A quick check on historical figures shows that Petronas dividends used to exceed the federal government’s debt service charges before 2016. Since 2016, however, debt service charges have consistently exceeded ordinary dividends from Petronas.

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The exceptions were 2019 and 2022, when Petronas paid special dividends to the government that needed extra money to cover excess tax refunds owed to businesses and individuals (2019); and an outsized RM77.7 billion blanket subsidies bill when energy as well as food prices rose around the world (2022).

Rubbing salt into the wound is the knowledge that not all debt taken on by Malaysia has been productive for the country. Noting that it was due to weak management and leakages that government debt had grown faster than the country’s economic growth, Anwar rightly said governance is among the first things that needs to be improved.

According to him, debt and liabilities have ballooned to RM1.4459 trillion or 81% of gross domestic product in 2022. This is significantly higher than RM1.0873 trillion in 2017 — just six years back — when direct federal government debt stood at RM686.84 billion, or RM392.76 billion lower than current levels (see table).

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Dividends from Petronas are not easy to come by and should be utilised well to build up the country’s strategic capacity and human capital. It cannot be right that Malaysia’s debt pile has grown so huge that the interest payment on those debts alone exceeds the dividends coming from Petronas.

Across the Causeway, Singapore — which does not have a national oil company — has had to spend a lot more wisely to build up reserves for a rainy day. In less than half a century, however, the AAA-rated city-state has squirrelled away more than a trillion dollars in reserves — from which annual national budgets get a revenue boost from net investment returns contribution (NIRC). The strong coffers came in handy when Covid-19 hit and forced most countries, including Malaysia, to take on more debt.

Reforms are clearly overdue on this side of the Causeway.


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