Sov­er­eign con­tin­gent claims anal­y­sis needed

> Govt should in­clude the es­ti­mates in bud­getary process, says eco­nomics pro­fes­sor

The Sun (Malaysia) - - MEDIA & MARKETING - BY EVA YEONG

PE­TAL­ING JAYA: The govern­ment should con­duct sov­er­eign con­tin­gent claims anal­y­sis and in­clude the es­ti­mates in the bud­getary process, said Sun­way Univer­sity Busi­ness School Pro­fes­sor of Eco­nomics Prof Dr Yeah Kim Leng ( pix).

“I think the govern­ment should con­duct that kind of sov­er­eign con­tin­gent claims anal­y­sis so that we can es­ti­mate and in­clude it in our bud­getary process for those con­tin­gent li­a­bil­i­ties that may crys­tallise in the fu­ture and, of course, take mea­sures to ad­dress them be­fore they hap­pen,” he told re­porters on the side­lines of Re­hda In­sti­tute’s Bud­get Com­men­tary 2017 yes­ter­day.

He said th­ese analy­ses are im­por­tant given the large num­ber of mega projects that need to be well co­or­di­nated in or­der to avoid a lumpy im­pact on the econ­omy.

“It is im­por­tant to se­quence it prop­erly so that there is no sharp in­crease in our debt that will de­rail our fis­cal sound­ness,” he added.

Yeah, who was re­spond­ing to ques­tions on whether 1Malaysia De­vel­op­ment Bhd (1MDB) should be in­cluded in govern­ment debt, said in terms of con­tin­gent li­a­bil­i­ties the govern­ment must study the like­li­hood of the events crys­tallis­ing that would lead to the govern­ment hav­ing to bear the debt.

“Some of the li­a­bil­i­ties are very long term so what we need to do is assess the pro­file of the li­a­bil­i­ties to en­sure that there is no pos­si­ble event risk when they are all lumped to­gether, the re­pay­ment will ex­ceed our cur­rent op­er­at­ing sur­plus that may de­rail our liq­uid­ity. It is more of a liq­uid­ity is­sue,” he said.

Yeah said rat­ing agen­cies do con­sider the amount of con­tin­gent li­a­bil­i­ties and assess the vul­ner­a­bil­i­ties and pos­si­bil­i­ties of the con­tin­gent li­a­bil­i­ties crys­tallis­ing as part of their due dili­gence, although they may not pub­lish it.

“Th­ese are the hid­den risks which if the rat­ing agen­cies do not take into con­sid­er­a­tion it may af­fect the re­li­a­bil­ity and cred­i­bil­ity of the rat­ing,” he added.

On the prop­erty sec­tor, Yeah said de­vel­op­ers need to un­der­take some re­bal­anc­ing in terms of fo­cus­ing on the af­ford­able seg­ment.

“The over­all Bud­get 2017 is likely to be neu­tral for the mid and higher end seg­ments of prop­erty mar­ket largely be­cause there is in­creas­ing sup­ply of those houses that more than meet cur­rent de­mand. The im­bal­ance is in the af­ford­able seg­ment where there is a need for higher sup­ply,” he said.

He said it is timely to shift fo­cus with Bud­get 2017 al­low­ing that kind of shift and cre­at­ing more in­cen­tives for de­vel­op­ers to fo­cus on that seg­ment.

In terms of price trends, Yeah said prices are still hold­ing up although price growth is de­cel­er­at­ing.

“The latest house price in­di­ca­tors sug­gest it is still grow­ing at around 5%, which is slightly be­low the trend. We are see­ing a soft land­ing for the prop­erty sec­tor,” he added.

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