This is a response to Deputy Finance Minister Ahmad Maslan who was reported in the online media as saying that “the additional funds (the RM15 billion Supplementary Supply Bill that he tabled earlier this week) were needed to pay for fuel subsidy and the new salary scheme for civil servants, including police and the armed forces”.
Ahmad Maslan (left) said payment for subsidies, emoluments and other “urgent items” required RM14.13 billion and a further RM888.5 million was required for other expenditures.
He said the Treasury General Services alone accounted for RM11.8 billion of the added allocation.
Next week, the ministries that will benefit from the supplementary funds will defend their additional allocation under the Bill with rationale for their spending.
The constant request for funds reflects the inefficiency of the government in managing its finances. Just in July this year a supplementary bill totalling RM12 billion was approved for the year 2012.
Now, another RM15 billion is being tabled just a few days before the Budget 2014 is presented.
I have this to say.
As expected, the supplementary budget (which has already been spent, anyway) is again going to non-priority operating expenses and may go to the Prime Minister’s/Treasury Department (instead of the development/rural/education priority ministries), possibly to pay civil servants and non-budgeted election goodies (not prudent areas).
We should now expect the supplementary budget size to exceed five percent of the approved 2013 Budget (RM251 billion) and more than 1.5 percent of 2013 GDP, and hence is significant and material.
The immediate view
What are its impacts on the capital market? What are the impacts on the economy? And impacts on the rating agency? Then, how about impacts on the fiscal reforms?
(1) The proposed supplementary budget is fiscally not prudent and could unnerve the market especially, for there is a perceived backtrack from an earlier fiscal pledge and a negative warning from the global rating agency.
(2) It sparks concern that the government has low political will to carry out fiscal reforms on subsidies, taxes and prudent government spending. It raises concerns over the government’s ability to pare down national debt and contingent liabilities, currently at very critical levels.
(3) It could cause an ultimate downgrade in the country's credit ratings. Hence, it will make it expensive for Malaysians to borrow money from abroad and will also dampen investment flow into Malaysia’s equity and bond markets, with negative perceptions of the country’s deteriorating credit quality.
(4) It could retard economic growth given the higher bond yield (from downgrades and falling capital market wealth effect).
In conclusion, the quadruple factors of slowing economic growth, rising borrowing costs, negative downgrades of sovereign rating and the possible breach of debt ceiling will be the ultimate economic mess that Malaysians will face if these trends continue.
Ahmad Maslan (left) said payment for subsidies, emoluments and other “urgent items” required RM14.13 billion and a further RM888.5 million was required for other expenditures.He said the Treasury General Services alone accounted for RM11.8 billion of the added allocation.
Next week, the ministries that will benefit from the supplementary funds will defend their additional allocation under the Bill with rationale for their spending.
The constant request for funds reflects the inefficiency of the government in managing its finances. Just in July this year a supplementary bill totalling RM12 billion was approved for the year 2012.
Now, another RM15 billion is being tabled just a few days before the Budget 2014 is presented.
I have this to say.
As expected, the supplementary budget (which has already been spent, anyway) is again going to non-priority operating expenses and may go to the Prime Minister’s/Treasury Department (instead of the development/rural/education priority ministries), possibly to pay civil servants and non-budgeted election goodies (not prudent areas).
We should now expect the supplementary budget size to exceed five percent of the approved 2013 Budget (RM251 billion) and more than 1.5 percent of 2013 GDP, and hence is significant and material.
The immediate view
What are its impacts on the capital market? What are the impacts on the economy? And impacts on the rating agency? Then, how about impacts on the fiscal reforms?
(1) The proposed supplementary budget is fiscally not prudent and could unnerve the market especially, for there is a perceived backtrack from an earlier fiscal pledge and a negative warning from the global rating agency.
(2) It sparks concern that the government has low political will to carry out fiscal reforms on subsidies, taxes and prudent government spending. It raises concerns over the government’s ability to pare down national debt and contingent liabilities, currently at very critical levels.
(3) It could cause an ultimate downgrade in the country's credit ratings. Hence, it will make it expensive for Malaysians to borrow money from abroad and will also dampen investment flow into Malaysia’s equity and bond markets, with negative perceptions of the country’s deteriorating credit quality.
(4) It could retard economic growth given the higher bond yield (from downgrades and falling capital market wealth effect).
In conclusion, the quadruple factors of slowing economic growth, rising borrowing costs, negative downgrades of sovereign rating and the possible breach of debt ceiling will be the ultimate economic mess that Malaysians will face if these trends continue.
DR DZULKEFLY AHMAD is director of the PAS Research Centre.
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