SABAH BUDGET 2013 LACK OF FISCAL DISCIPLINE

DAP Sabah calls for the reallocation of the Chief Minister’s Department and the Ministry of Finance’s expenditure to other Ministries in the upcoming 2013 Sabah state budget.

Even though Sabah has been enjoying relatively healthy budget surpluses over the past 6 years, Sabah’s state debt has also increased significantly and now stands at a worrying level.

Even though state revenue has increased by 236% from RM1.78b in 2005 to RM4.20b in 2010, state debt has increased by an even higher rate from RM1b in 2005 to RM3.1 in 2010, an increase of 310%.

This prompted the following statement from the Malaysian Ratings Agency at the end of 2011:

‘Despite Sabah’s favorable financial standing in 2010, the state’s public debt was rising at a faster clip of 30.6% in 2010, owing to bond issuances amounting to RM544 million as well as new loans granted by the federal government totaling RM168.0 million during the year.

As a result, public debt stock as a percentage of total revenue remained elevated at 73.9% in 2010 (2009: 77.9%).

Higher borrowings by the state are undertaken for the purposes of funding major economic development projects such as water supplies and low-cost housing.

However, the rapid rise in the debt level may yield legitimate concerns on the state’s ability to repay its liabilities, particularly when the amount of cash balances available in smaller than the size of public debt.

The cast-to-debt ratio has been dwindling to around 2.5% in 2010 from as high as 4.5% in 2006, implying the state’s reduced ability to service its debt.’

As a result of this rapid increase in debt, debt servicing charges has also increased significantly.

For example, debt serving charges amounted to RM92m in 2010 but was projected to increase to RM145m in 2012, an increase of 57.6% in just two years.

As a basis for comparison, government revenue was projected to increase by only 22.5% from RM3304m in 2010 to RM4048m in 2012.

The fact that much of this debt was incurred for development expenditure and projects shows that (i) the state government was not prudent in using its budget surpluses for development expenditure (ii) the state government was not prudent in minimizing the costs of these projects (iii) the federal government has not played its part in properly funding development projects in the state.

One of the symptoms of this lack of fiscal discipline and oversight is the rapid increase in the amount allocated to the Chief Minister’s Department and the Ministry of Finance, both of which are under the direct control of Sabah Chief Minister, Musa Aman, who has been the focus of an international investigation involving allegations of money laundering via Swiss bank accounts in Hong Kong and Switzerland.

The Ministry of Finance’s allocation has skyrocketed from RM737m in 2008 to RM1.94b in 2012, a 263% increase. During the same time period, the overall budget increased from RM2.3b in 2008 to RM4.1b in 2012, which is only a 76% increase.

The allocation received by the Chief Minister’s Department and the Ministry of Finance has been increased from RM1.25 in 2008 to RM2.56b in 2012 and its share of the total budget has risen from 54% in 2008 to 63% in 2012.

More worryingly, some of the increased allocations have occurred in items which are lacking in transparency. For example, one single item under the budget estimates for the Ministry of Finance entitled ‘Special Expenditure’ or ‘Perbelanjaan Khas’ came up to RM1.13b, or more than one quarter of the total 2012 Sabah state budget.

What is more worrying is that this ‘Special Expenditure’ amounted to only RM654m just two years prior, in 2010! This represents a whopping increase of 73.1% in just two years in the ‘Special Expenditure’ allocation compared to the 22.5% increase in projected revenues.

DAP Sabah calls for a thorough disclosure of all the expenditure items in the upcoming budget, especially the big ticket allocations which are found in the Chief Minister’s Department and the Ministry of Finance including what the ‘Special Expenditure’ allocation has been and will be spent on.

In addition, DAP Sabah calls for a reallocation of 40% of the budget of these two ministries – the Chief Minister’s Department and the Ministry of Finance – to the other Ministries which have been neglected and underfunded.

That 63% of the state’s budget is under the control of a single Minister – the Chief Minister in this case – is not only poor economic policy but also invites abuse of power and corruption especially when much of this expenditure is not properly accounted for.

Pakatan Rakyat Sabah will announce its own Sabah Alternative Budget on Wednesday, 15th of October, 2012 where it will outline how this 40% reallocation will be spent.

This will be in the context of a comprehensive and forward looking budget to explain how the additional oil royalty which Sabah will be given under a Pakatan Rakyat state and federal government will be prudently spent in a manner which distributes social outreach responsibly and fairly as well as allocates development expenditure strategically in order to catapult Sabah to a new growth trajectory and to eradicate poverty in the state. (DAP Sabah Alternative Budget Working Committee)