Tuesday, November 03, 2009

Budget 2010 : Financial Position

There is little to indicate in the PM's Budget 2010 speech on how the government intends to finance the RM50 billion deficit. Until and unless this government comes to its senses, the country's financial position is going to be worsening.

Malaysia is set to register a straight 12 years of budget deficit and a record external debt of RM450 billion or more. This is a staggering figure. Over the last 6 years, the national petroleum company, Petronas, has contributed more than RM260 billion to the government's coffer.

The amount does not commensurate with the level of development enjoyed by this country. I had written about a lack of urban renewal projects, public transport system enhancement, new public amenities and others.

The Prime Minister has outlined the creation of a knowledge economy and a high income workforce by 2020. This objective cannot be achieved if there is not accountability and a proper ROI for the funds used.

There are several major obstacles for the government:

1) There is a lack of a proper mechanism to evaluate public spending in the country. For example, the 2010 Budget has an allocation of RM22 million for a study on the implementation of a nationwide GST. It has received a protest from opposition MPs in the parliament. The amount is absurd. Being a consultant with some of the top consulting firms in the country, I find this sum difficult to digest. Similarly, more than RM200 million was billed by the consultants of PKFZ. When the government starts to be more accountable?

2) Despite mounting criticisms and abuses reported in the Auditor's General Report, the government has yet to budge on the implementation of a full open tender system. States such as Penang has shown that an open tender system can help the government to save a lot of money. It makes the private sector more competition and helps to weed out corruption in the public procurement process.

3) The government revenue streams have not grown very much since the last decade. The private sector is not doing that well. Individuals who are paying taxes have not grown beyond the 11% of total workforce. In a developed country, more than 60% of workforce pay an income tax. A low level of those eligible to pay tax does not help the government to fully adopt the GST. It means that the lower income group will be worse hit if a full GST is implemented. Without its implementation, the World Bank has warned Malaysia of a worsening government's revenue. Its dependency on oil revenue is not very positive either.

4) Malaysia has yet to realize its investments in various mega projects. Despite the claim by Mahathir that mega projects are good for the economy. It appears that a non-productive infrastructure development or a new industrial park gives only a short term stimulus to the economy. The budget continues to neglect other important industries such as manufacturing, innovative and creative services, tourism and hospitality services and others. Malaysia spends without a good ROI. The PKFZ is a prime example. Next the Cyberjaya and soon the Nusajaya and other regional corridors.

5) The government is facing its own political and policy bottlenecks. The race-based coalition cannot move beyond its race affirmative policies. Hence, it does not have a post-NEP policy or is reluctant to introduce any policy which can help to promote meritocracy which is sorely needed by the country.

Hence, I agree with a few observers that the 1Malaysia slogan is just but another empty slogan. Very little has changed since the leadership transition from Abdullah Badawi to Najib Razak. Complacency, racial politics, corruption and abuse of power by certain public institutions are still rampant.

We deserve better than this.


Anonymous said...

Your points very well said.If I may add..1)Mentality is what is RM22 when the new GST scheme will rope in RM22B? 2)Must remember who are the people who helps put the ministers in office. 3)Dont worry, you have the EPF and Khasanah etc.4)ROI does not exist in BN or BM.5)You have 2 MBs in Perak and 2 Deputy President in MCA.In-fighting in BN and PKR.Where to find the time to ponder over existing or new and better policies? Maybe Mr. Najib may resign as he is having so much steam generating below him!Being a PM and a DPM is different ball-game!

Anonymous said...

The leakage and hemorrhaging is horrendous - like paying RM 42,000 for a laptop computer, going on overseas study tours with the wife and children tagging along, huge sum paid out in compensation for canceling construction of the JB-Singapore bridge, the PKFZ billing fiasco, and much more.

What the rakyat know is very likely the proverbial tip of the iceberg.


Anonymous said...

mr khoo, by any chance do you know waht is the current gdp of malaysia?

coz by most economic terms, a deficit/gdp of more than 40% is a cut off point for hyperinflation.

btw, US is at 39-40% and japan is at >200% but is strangely experiencing deflation!!!


Anonymous said...

Your blog is helping us to understand complex issues since you explain them in simple ways. Keep up your good work and educate us with your "down to earth" way of explaining things.

Khoo Kay Peng said...

Malaysia's 2008 GDP is RM528.804 Billion. Hence, a deficit of nearly 10%. External debt standing at almost 90% of GDP

Anonymous said...

Remember, have to consider the next generation who will be paying for the monies spent and yet, nothing return.

Malaysian mentality, hutanggggg saja.

Anonymous said...

KKP cum e-con nomist, yr 5th point reflects yr racist attitude. Economics is not just about absolute growth but also equity

Anonymous said...

point 5 have nothing to do with racism. is meritocracy not more morally better than doing things based on race? anyway, the gomen is so screwed. those in power just suck and suck and leave the rakyat poor.