Drama Kera La
SeaDemon Says
Recently, a video clip of how China is fulfilling its hegemonic ambitions using economic means was spread around especially in Facebook and WhatsApp groups. The video compares the Sino-Sri Lankan joint-venture at the Hambantota Deep Water Port with the ones in Malaysia, proving that Malaysia, like Sri Lanka, could end up not only with a huge debt owing to China, but also lose its ownership of those assets.
On the surface, it sounds scary to have so much money owed to China for these projects especially so for the ill-informed. But comparing Malaysia to Sri Lanka hardly does any justice.
The Hambantota Deep Water Port lies within the constituency of the former President Mahinda Rajapaksa and costs more than $1 billion to construct. Another project that was constructed in this constituency is the Mattala Rajapaksa Airport, located 30 kilometres away from the port, which until now flies only a few hundred passengers in and out weekly and has been dubbed “the world’s loneliest airport.”
Hambantota is a remote region in the South, 240 kilometres from Colombo and the nearest city, Galle, is 130 kilometres away. The population of Hambantota is around 12,000 people and is very underdeveloped. The problem with Hambantota’s deep-water port is that its waters are not deep enough for large vessels with deep draught, so large shipping companies shy away from it. It is far from any development that hardly anyone wants to move there. Both the port and the airport cannot generate enough income to sustain operations let alone pay back loans to the Chinese.
Sri Lanka owes its financiers close to $65 billion and of this, $8 billion alone is owed to the Chinese. Its GDP stands at $81.32 billion, debt-to-GDP ratio stands at roughly 75 percent while its foreign currency reserves is at $7.2 billion. The Sri Lankan government uses 95.4 percent of its revenue to repay debts. These are the reasons for Sri Lanka to opt for a debt-for-equity solution for both projects.
Compare this with Malaysia’s $13.1 billion East Coast Rail Link, or RM55 billion in Malaysian terms. Malaysia took a $11.14 billion loan (85 percent or RM46.75 billion) from China to finance the project while the balance is in the form of a sukuk programme managed by local financial institutions.
The Forest City project in Johor is a development programme that runs over 20 years. How much is being allocated per project is a company confidential information but if we go by average, it would be at $5 billion per annum, with a total of $100 billion over 20 years. The project commenced in 2015 and to date has completed about 11 percent. At the end of December 2016, Forest City saw concluded contracted sales of $2.9 billion for 17,000 apartment units. It still has another 17 years of development to go.
Our GDP now stands at around $320.25 billion (RM1.3 trillion) for 2017 which puts the cost of the ECRL project at 4.1 percent of the GDP while Forest City accounts to approximately 1.6 percent of the GDP per annum. The total Government debt as at end of June 2017 was reported to be at RM685.1 billion or 50.9 percent of the GDP. Of this total, RM662.4 billion was domestic debt while RM22.7 billion was offshore loans.
Interestingly, as of October 2017, the US debt to China is at $1.2 trillion, which is 19 percent of the $6.3 trillion in US Treasury bills, notes and bonds held by foreign countries. The US GDP in 2016 was $18.57 trillion which makes its China-debt-to-GDP alone at 6.5 percent.
Of course, we could undertake to pay for all the above projects. Our foreign currency exchange reserves are at RM414.71 billion ($102.17 billion) which is more than enough to pay for both projects. If we use the Mahathir-era method, then Petronas has RM129 billion in cash ($31.8 billion) while the EPF has RM771 billion ($189.9 billion) worth of assets. This does not include sources from other funds such as Khazanah, Tabung Haji, KWAP, SOCSO, PNB and others.
