Start cutting down borrowings

This cycle of creating a new bigger loan to pay a smaller debt is accumulative and not a regressive payment.

COMMENT

Unlike many countries Malaysia is blessed with abundant natural resources and a relatively small population.

These natural resources can be tapped to develop its economy and provide sufficient goods and services for the people. Alongside this we can aspire for a steady economic growth, fairer distribution of wealth, eradication of poverty and even a yearly surplus budget.

But all this can only materialise through good leadership, sound economic policies and a clean administration.

A multi-racial and multi-cultural nation requires an economic model that is not only development-orientated but also multifaceted to cater for these differences.

Such a comprehensive economic policy can propel Malaysia to surpass the standard of living of many countries barring unforeseen circumstances such as global economic meltdown, wars and natural calamities.

Our leaders should aim for a well rounded economic model.

But instead what we have is the relentless rage of extremism and supremacy of a single race or political party over others, bent on foiling the agenda of well-planned policies and destroying the fabric of the Malaysian society.

Since the year 1998 Malaysia has not been able to free itself from the shackles of the deficit fiscal problem.

Persistent deficit budgets is a dangerous trend and means there will generally be not enough money to redress unemployment, infrastructure, education and defence among others.

The accumulation of debts would then become a major item in the budget expenditure.

A large portion of the revenue goes to pay off the debts.

Accumulative debts

In times of inflation, economic bust or meltdown and the uncertainties in the foreign exchange and equity markets, the economy would not be able to control the substantial price rise of goods and services.

The country will have no funds to stimulate the economy out of recession and stop the currency fall and the stock market crash.

For the 2014 budget, the gross revenue is RM262,151 billion while the actual revenue from taxes is only RM224,139.1 billion. The borrowings stand at RM38,0111.9 billion which is 14.5% of the total revenue.

The government is utilising part of the RM38 billion loan to settle next year’s debt servicing amounting to RM23,069.28 billion, which forms 8.8 % of the total expenditure of RM262,151.00 billion.

This leaves us with a balance of RM14,942.62 billion for ‘development purposes’.

This cycle of creating a new bigger loan to pay a smaller debt has been going on for the last 16 years. It’s accumulative and not regressive payments.

Should a major global political or economic crisis hit the economy it has no means to fend off the impact.

Any good budget in the face of accumulative debts will aim to cut down the borrowings to a lesser amount.

Lets say we borrow RM15 billion to pay off the RM38,011.9 billion. The RM15 billion can be used to pay off part of the debt servicing which totals RM23 billion.

The balance of RM8 billion can be met by drawing from the total tax revenue.

In this way the government borrows a smaller loan to pay a bigger debt servicing amount yearly and uses part of the tax revenue to cover the balance.

Thereby the total borrowings would become regressive instead of accumulative over the years.

Awang Abdillah is a political analyst, writer and FMT columnist