No prudent financial management without oversights

This reader gives six areas for consideration before anyone can truthfully say Malaysia has positive macroeconomic indicators.

COMMENT

By TK Chua

Idris Jala, the CEO of the government’s Performance Management Delivery Unit (Pemandu) can go on with his mantras on Malaysia’s positive macroeconomic indicators. I will go on with my response to indicate that whatever he said is full of half-truths or even misleading.

What fiscal reforms was he talking about, that according to him, have trimmed the deficit in the past five years?

First, where is the productive and value spending over the past five years? Yes, GST (Goods and Services Tax) was introduced, but that was to continue the government’s profligate ways. With oil prices now falling fast, I do not see how the GST will be able to sustain the government’s fiscal position for long if no serious revamp and re-prioritisation of government spending are undertaken.

It is my humble observation that every GTP (Government Transformation Programme) is a new and additional programme without culling any of the existing ones. How then can we talk about reforms and restructuring in the public sector? If Idris Jala is serious, he should have shown us substantive reforms in government expenditure using the comments of the auditor-general’s reports as the guide over the past five years.

Second, for Idris Jala’s information, selling government assets or using money from trust funds such as KWAP (Retirement Fund Incorporated) to make deficits look better, are strictly and technically incorrect. Sales of government assets and money from trust funds are not recurring operating revenue but one-off items which, if included, will give a misleading picture on government finance.

Third, according to Idris Jala, Malaysia is in a “safe zone” because public debt is below 75 per cent of GDP (Gross Domestic Product) and annual fiscal deficit is 4 per cent of GDP or below. For this, let me remind Idris Jala that the overall strength of the economy is not determined by one or two magical numbers alone. The debt and fiscal positions must be considered together with other fundamentals – exports and imports, balance in the current account of BOP (Balance of Payments) which includes capital flows, value of ringgit, inflation, trends and recovery in commodity prices, economic health of Malaysia’s major trading partners and other factors. Worsening trends in any of these factors may negate the positive trends in government finance and public debt.

Fourth, Idris Jala must properly define what constitutes “public” debt. For this, he must tabulate all debts which the federal government is ultimately responsible for. This would include the debts of the federal government, public enterprises, Government-linked Organisations (GLCs), statutory bodies, state governments, local authorities, and privatised entities which the federal government stood as guarantor for. For example, debts accumulated in Pembinaan PFI, Perbadanan PRIMA, 1Malaysia Development Berhad (1MDB), and Port Klang Free Zone (PKFZ) should be included as part of the public debt.

Fifth, as for deficit, Idris Jala must include all off-budget operations which are not reflected in the federal budget but will eventually impinge on government finance. Again, he must tread carefully on all investments, obligations and activities in Pembinaan PFI, Perbadanan PRIMA, 1MDB and countless other off-budget agencies, including many formed under the state governments.

Sixth, Idris Jala must explain the recent RM20 billion additional allocation to ValueCap, the funding of which has come from Khazanah Nasional Bhd, KWAP and Permodalan Nasional Bhd (PNB). Can we see that it is an off-budget agency (Khazanah), trust fund (KWAP) and private money (PNB) that is financing a government programme? Is this not enlarging government operations without showing the full implications on the federal budget? Where are the Parliamentary oversights on supply bills and federal government budgets?

We must get real; there is no prudent financial management without oversights.

TK Chua is an FMT reader.