Wastage, ballooning debts and expenses

In the first of a two part series, a research associate from Institute Rakyat addresses issues on Budget2014.

COMMENT

By Raja Ahmad Shahrir

“What you cultivate during the next seven years, when the time of harvest comes, leave the grains in their spikes, except for what you eat. After that, seven years of drought will come, which will consume most of what you stored for them. After that, a year will come that brings relief for the people, and they will, once again, press juice (olives and grapes).” Joseph: 47-49, Quran

As the lesson from the story of the prophet Joseph goes, livelihood is a cycle of economic ease and hardship. Keep during the good times, and sustain during the bad. With patience and fortitude, the good will eventually rise again.

The situation, however is not the same with the Malaysian economy, nor in particular with the budget.

In this article in anticipation of the 2014 budget, I will address issues with the Barisan Nasional government’s budget, and Pakatan Rakyat’s practical steps to improve the process.

Since 1997 Malaysia’s economic growth has slowed to an average of 4-5 % a year. In the 1980s and 1990s the pace averaged 9%.

Malaysia’s loss of self confidence and being stuck in the middle income trap is compounded by the fact that the country is extremely blessed with natural resources and yet has continuously squandered opportunities and are being overtaken by its neighbours.

The last time Malaysia had great economic growth was in the early to mid 1990s, which was also the same period when Anwar Ibrahim was Finance Minister.

Incidentally, that was also the period when we had a five-year streak of continuous surplus in our national budget.

Since then, however, the budget philosophy has changed and the fiscal astuteness has not been seen again.

The BN government’s fiscal management continues its blatant disregard of good practices.

Wrong priorities

The Umno-led BN government is, unfortunately, a spendthrift government with wrong priorities. We are now in our 15th year of deficit.

A deficit is not necessarily a bad thing, and in times of economic challenges, it is even a necessity.

A government can spend more to stimulate the economy. But 15 years in a row is a long time, without any visible plans to reduce it in the future.

Fifteen years of prime pumping and we experienced a mediocre average growth rate of 5% per annum, for a still developing nation.

The (mis)allocation to the Prime Minister’s Department to the tune of more than RM10 billion is a grave concern.

Prior to 2008, the PM Department’s budget was less than half of what it is today.

The allocation between Operational expenditure at 77% and Development expenditure at 23% is sub optimal.

The government needs to drive budget allocation towards development, targeting more than 30% of the budget to ensure that monies are spent directly and effectively.

And certainly, the Auditor-General’s Report is testament to the frequent and continuous wasteful expenditures, without any visible effort to combat these excesses.

Secondly, there is the ballooning debt situation, which we continue to fund from borrowings.

Fifteen years of deficit spending by Umno/BN has also given us a large national debt of more than RM441 billion.

In addition, our government-linked companies (GLCs) are in debt to the tune of RM118 billion.

These GLC debts are guaranteed by the government, therefore the total debt exposure of the government is even larger RM559 billion or 66% of the 2011 GDP.

As comparison, Spain’s sovereign debt is at 68%. Malaysia may have many more other debts that are off balance sheet, including pension obligations.

On top of all this, the mother of all debt will be in the form of the financing of the grossly inflated MRT project.