INTRODUCTION
An accidental government is set to bring forward the Budget 2023 by three weeks to Oct 7, 2022.
If there is a sudden dissolution of Parliament, that Budget would be an enticement to voters with election goodies on the tables for the rakyat where 6 out of 100 households in Malaysia could still not afford to meet basic needs like food, shelter and clothing; almost half a million lives in poverty. A poor family of four survives on RM$17.80 per day per person and similarly, an absolute poor family survives on RM$9.43 per day per person.
Yet it comes at a time when the national economy grows at its fastest annual pace in the second quarter of 2022, boosted on one hand by post-pandemic pent-up domestic demand, and on the other, an exports expansion when the blue waterways' supply chains are loosening.
However, there would be challenges ahead.
In July, the International Monetary Fund (IMF) managing director Kristalina Georgieva had indicated that the global economic situation shall continue to be challenging in 2022 and 2023, with an increased risk of a likely recession. Any slowdown in global growth is expected to pose an imminent risk to the country's economic outlook for the rest of 2022 possibly leading to further depressed politico-economic outcomes in 2023.
Further, Capital Economics said in a note it expected Malaysia’s economic growth to slow in coming quarters, as commodity prices would potentially drop back and whatever boost from border reopening fade away.
In fact, 20% of households from the M40 group with income between RM4,850 and RM10,959 had dropped to the B40 group. More dismally, 52% of EPF members’ withdrawal has left 6.62 million rakyat aged under 55, with savings of less than RM$10,000 in their saving accounts.
The UNICEF 2020 Report has shown that urban low income female-headed households are exceptionally vulnerable:
Indeed, under the previous 2022 Budget, more than half of the subsidies provided have benefited the higher income T20 household.
What's the politico-economic state of nation?
Referring to the theedge template above, here are some thoughts:
1. Look at Frame #1: the nation is not only in debt - even with oil and gas assets, and agricultural commodity resources - but the national debt has accelerated through the years with odious practices and leakages from the littoral combat ship construction to private finance initiatives that bleed the national coffer besides the monthly dues in amortised interests on the 1MDB lootings as well as RM173.3 billion in lease payments for public-private partnerships (PPP).
Other diversion to capital outflows are well documented in the Panama Papers and Pandora Papers; specifically on Diam’s and Jho Low’s captured wealth and the Sarawak Report Dealings With Crooks, besides Illicit Incomes.
Indeed, the FEDERAL government debt and liabilities were already RM1.2569 trillion, or 87.3% of GDP, as at end-September 2020 - up 7.5% in the first nine months of the year compared with RM1.1692 trillion as at end-2019, and it could well reach RM$1.3 Trillion by 2023.
2. Frame #2 we are for 25 years in fiscal deficits - spending more than what we should be getting better revenue returns on national resourceful assets - in a stupor of subsidy dependency and Burden of Privilege, besides mired in a serial systemic corruption syndrome.
The New Economic Policy (critiques: Woo 2015, James Chin 2016, KBN 2018, Khalid 2019, KRI 2020, Kua 2021 & Diam 2021) has enabled a class of super-rich clientel capitalists while the marginalised poor is sliding further down the poverty line - the wages and salaries of Malaysian workers had grew less than 1%, or about RM17 in real terms, Bank Negara Malaysia data had shown.
The overall process of “restructuring” has lead country to cronyism, corruption, clientelism politics with the undue and callous wastage of public funds (like the LCS case) as publicised by various Auditor-General Reports.
Take another fact: the gross domestic product by income released by the Department of Statistics Malaysia: 60% of the wealth is held by the capital owners, while 37% is held by workers. This is low compared with South Korea workers who attained 54% share in common prosperity.
3. Frame #3 shows operating expenditure is exceeding revenue incomes by daily operational administrative running of a country. The Malaysian Civil Service (its service-to-population ratio is 1:20 which is reportedly among the highest in the world whereas Singapore’s 1:71 and 1:11 for Indonesia) in 2019 needed RM$82.04 billion - which is larger than the entire company income tax receipt of RM$70.2 billion - to remunerate the 834,109 civil emolument bill; the resistance to change is an inevitable presence
“It’s not too big”, more so when there are 23,462 civil servants who will be paid more than RM$1 billion this year.
When operations expenditure alone constitutes 99% of federal revenue, it is non-optimal nor effective in performance deliverance considering the debts of a nation. Instead, more financial allocations should be devoted to prime economic develop a nation.
Sudhave's Chart 3 shows the growth of exports and overall trade is on a long-term declining trend coinciding with the declining contribution of the manufacturing sector to overall GDP, which peaked soon after the Asian Financial Crisis at just over 30% and has since also been on a declining trend, reaching about 21% by 2019. This positions a weakening international competitiveness whereby Malaysia has lost export markets and products (overtaken by Vietnam and Thailand), and has seen a hollowing out of its manufacturing endowment to the real nationalgross domestic product:
This is more glaring post-1990s when the prematured de-industrialisation processs towards a financialization capitalism approach that benefits exclusively an ethnocapital class.
4. Frame #4 is where the 2023 Budget is expected to be largest in size at estimated +RM$340 billion. It will heavily dependent on subsidy funding from a Petronas leverage which doubles its dividend payout to RM$50B on government's request as reported by theedgemarkets 31/08/2022. The Budget has to consider a possible +RM$25B to support Tenaga's tariff increases, too. The nation, after 65 years of neoliberalism-is-neoimperialism-regime is doomed to drop deeper in debt-servicing.
Our tax revenues have grown only modestly with succeeding regimes (in 2018, with a 15 million labour force only 2.5 million were taxpayers).
There is a increasingly dependent on non-tax revenues such as dividends from Petronas and the sale of government assets through private finance initiatives which are becoming another suite of scandals-in-the-making.
How to finance an accelerated economic development when the country has experienced persistent budget deficits as shown in this Sudhave's Chart #4 below:
An approach undertaken, since 1997, the country had relied extensively on Malaysian Government Securities to finance budget deficits by creating or printing new currency notes
(those “helicopters’ monies”). Also part of the debt papers was monetized; therefore, money supply and currency in circulation had increased sharply since 1999:
CONCLUSION
We are at another crossroad.
Malaysia’s inflation in July 2022 hits 4.4% - highest since May last year (even higher if many subsidies are not in place).
Contributing factors are global supply chain disruptions, escalating commodity prices, higher wages due to post-pandemic labour shortages and revised national minimum wage, besides the expiry of selective government’s price control schemes.
There is also a perception that the decline in the exports-to-GDP ratio is due to the stronger growth of domestic demand.
It is more than that.
We are loosing out in foreign direct investment as well as shouldering a debt burdened carriage:
High debt makes it more difficult for fiscal policy to play an effective countercyclical role. Weak growth further undermines the ability to service the debt or will entail trade-offs against other economically critical expenditures. Consequently, the impact is on the growth of an economy.
This is because whatever strong growth path needed (Olin Liu in her Malaysia: From Crisis to Recovery, IMF Occasional Paper No. 207), the trajectory should encompass continuous structural reforms in the agribusiness and corporate sectors, besides revamping the education ecosystem to increase productivity enabling competition and efficiency thus avoiding the circuitry of capital since independence gained.
“While other countries sprinted into high-income and developed nation status, Malaysia is jogging slowly,” Raad, the World Bank country manager for Malaysia had said.
On a bullock back.
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