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I READ with interest that Malaysia will raise the statutory debt ceiling to 70%. It has been lifted twice and was supposed to be a temporary move.
In 2021, Malaysia’s direct federal government debt rose to 63.4% of GDP (2020: 62.1%). Debt service charges surged 17.8% (ceiling: 15% of revenue).
I have no qualms about the increase compared to Singapore’s at 152% in 2020. But our current competitors – Thailand, Vietnam and Indonesia – are all below 50%.
The four main factors of economic growth are land, labour, capital, and entrepreneurship and we are restricted in some. We need to be more creative moving forward.
Investors look at GDP growth rates to allocate their assets. Currently, businesses are experiencing low profits and low share prices and consumers tend to cut spending.
Our foreign balance of trade may be good, but commodity prices may not be as high for too long and our neighbours are becoming more competitive.
Consumer spending is actually boosted by the various stimulus packages, and any reduction when the stimulus ceases will affect GDP. Disposable income is low, with high inflation and high level of household debt.
Our government debt more than tripled from RM306 billion in 2008 to a trillion currently. In just four years, government debt nearly doubled to RM502 billion in 2012.
As at end-2021, including directly guaranteed debts, total debt is about RM1.3 trillion, or about 83.5% of GDP.
Development expenditure was high from 2010 to 2020, and 22% of development expenditure was spent on transportation projects in 2020.
It is claimed that investments in transportation projects would improve the standard of living and reduce commuting time and traffic congestion.
But MRT Corp “achieved” close to a RM57 billion loss, five years into operations. And another RM50 billion is expected for the MRT3 Circle Line project.
It will be a government-guaranteed debt under DanaInfra Nasional Bhd and not counted as part of the statutory debt ceiling of 65% but it is additional debt.
During the first decade of the 21st century, the government made more than RM11 billion in profits annually.
However, from 2011 to 2020, it drastically dropped to less than RM2 billion annually. The administration then spent more than the revenue generated. Hence, piling up more debts.
More borrowings are expected to fund the RM400 billion development expenditure for the 12th Malaysia Plan. This does not augur well if profits continue to drop, yet having to rely on more debts to fund operations and not enough being done to be more productive and competitive internationally.
More debts may lead to macroeconomic implications and a negative impact on economic growth.
Based on the government’s debt sustainability analysis (DSA), there is increased risk exposure in the medium term in the event of materialisation of external shocks.
Overall, Malaysian economic growth has been trending down since 2010.
Next, the budgeting process and implementation.
The World Bank’s 2018 report on Budgeting for Performance in Malaysia highlighted a few actions that include timely and accurate reporting on performance by ministries, developing the technical capacity to evaluate performance information, and stimulating demand for performance information.
Meantime, we need to improve the quality of spending and develop a more performance-oriented culture.
The 2021 Open Budget Survey (OBS) results by the International Budget Partnership (IBP) show that Malaysia has a limited level of transparency on its annual budget and ranks at 57th out of 120 countries.
Further, the government reserves the right to submit “supplementary supply bills”.
The Finance Ministry needs to be more informed on future budget requests and to demand for details on how allocation was spent in the previous year. Summary reports to show programs that are worthwhile and which are not should be requested.
We have heard stories about how available balance was arbitrarily spent towards year-end, since if there are savings, there will be cuts.
In the meantime, the government needs to communicate, say, quarterly on how, where, for what purpose money is spent and the expected results compared to the budget. There is no need for glossy reports on this.
Government should spend prudently and increase investments in productive assets that will boost growth.
During these trying times, we need both careful revenue and expenditure measures. There are many structural weaknesses in public spending that need to be addressed, as shown in the auditor-general’s report.
Further, two-thirds of the government’s expenditure are on fixed costs such as emoluments, retirement charges and debt service charges. We need to optimise the utilisation of resources while remaining cognisant of its medium-term fiscal sustainability.
Strong political will and discipline are crucial, and are we willing to uphold the principles of accountability and transparency while ensuring debt sustainability?
Seriously, does anybody care? – The Vibes, July 17, 2022
Saleh Mohammed is a reader of The Vibes