By Raman Letchumanan
KUALA LUMPUR, Malaysia-On 10 Feb 2021, I wrote an opinion piece justifying why Malaysia’s economic life is terminally ill based on the sub-headings - corruption on the precipice, economy bleeding, and fiscals sucked dry.
The term ‘economic life’ is a take on the three threats that warrant a declaration of national emergency namely security, economic life, or public order.
Former premier Tan Sri Muhyiddin Yassin declared an emergency to tackle Covid-19, which also entailed the largest spending of public funds, but without any debate or check-and-balance as Parliament was shut down.
The amount of RM600 billion spent is now generating controversy and being subjected to investigation by the authorities.
While we have recovered from the Covid-19 pandemic, it is the economy that may now be admitted to the ICU for major surgery.
A prognosis which I predicted then if it was business-as-usual, or rather corruption-as-usual.
Prime Minister Datuk Seri Anwar Ibrahim just announced that we have a national debt of RM1.5 trillion, including liabilities.
With the wanton borrowing and spending accompanied by corruption and abuse of power, we should not be surprised by this dire state of our economy.
Government debt is people’s debt
According to the Statistics Department, our 2021 Gross Domestic Product (national income) was RM1.5 trillion.
Our household debt at the end of 2021 was RM1.4 trillion.
It would seem our economic woes in terms of national debt, household debt and GDP are all aligned in equal amounts.
If one bets on astrology with the stars aligning themselves, this certainly foretells an impending implosion of Malaysia’s economic galaxy.
Household debts are personal debts incurred by the people. A rising debt without commensurate income means people are increasingly becoming impoverished and have to depend on the government for survival.
But the government itself is heavily indebted, and cannot go on subsidizing the people.
However, to those indebted, the government offers free financial counselling to better manage their finances.
Many may not realize this, but the government debts have to be shouldered by the people. The government borrows our money, spends and invests just like any ordinary person.
But when it cannot repay the debts, the people stand guarantee and are liable for the debts.
The government never goes bust, as long as the people can pay for those debts through taxes etc.
If the government is a household or a company, given the current unsustainable debt level, it should have been declared bankrupt by now.
In essence our households are now shouldering double their personal debt at about RM3 trillion.
The politicians and policy makers should keep this in mind, that whenever they indulge in corruption - whether a few ringgit, millions or billions - they are directly stealing from the people.
I don’t think the government is serious enough in tackling the national financial woes.
Prime Minister Anwar is saying the right things, but whether the cabinet, civil service, government linked companies/investments are behind him is another question.
Our economy needs major surgery not band aids.
The government should be as prudent as they advise the people should be in our household finances.
Therefore, it is time that the policy makers undergo a basic financial counselling course.
It is in this financial counselling spirit, that I recall and update the salient points that I have written two years ago.
Corruption on free fall
Transparency International, which publishes the Corruption Perception Index (CPI) says a score below 50 indicates the country has “serious corruption problems”.
Our 2021 score was 48, and we eagerly await the 2022 score. But it is just a matter of how deep we plunge considering the many scandals exposed, but unfortunately covered-up at every instance.
It seems only those on the opposition side get busted now and then.
Anwar is steadfast on his anti-corruption reform, but it has to be implemented across the board.
There is no such thing as past is past, or those currently in high positions become untouchables.
Whistleblowing is now subdued.
Corruption as a criminal offence is not time-bound nor time-barred.
Even a child could see the direct correlation between the current debt level and the spade of corruption unearthed when Pakatan Harapan came into power in 2018.
Corruption is a malignant cancer that not only destroys the economy, but also social order.
Based on my analysis of the 2020 trade figures, I concluded that our top exports are mainly labor-intensive assembly operations and resource-based or extraction, while imports are manufactured or intermediate goods.
About 20 percent of the exports are re-exports, not something to be proud of.
Declining imports of intermediate goods imply less value-add activity domestically.
It seems Malaysia’s industrial structure has gone back to the “land, labor and capital” factors of production.
No wonder we hear of ever-increasing destruction of pristine forests and water catchment areas for construction, mining and natural resource extraction.
It is good our new economy and deputy finance ministers are suggesting a digital economy, high-tech industry, and value-added services to reduce our debt levels.
This has been talked about for more than a decade. But please implement it, talk is easy.
The fact we are still clamoring for cheap foreign labor, while our graduates are unemployed or under-employed shows we are still far away in upgrading our economy.
The quality of FDIs similarly mirrors our export trends. We should free our businesses, and not shackle it by government monopoly, subsidies, quotas and licenses.
When there is a demand, let free market forces respond to it.
The government should not be saying if chicken and egg prices are high, then don’t buy it.
The theory of elasticity of demand and supply only applies to a perfect market, and even then not for basic essential goods. Free our market and make it perfect first. This is economics 101.
Fiscals sucked dry
This is equivalent to households not spending within its means, incurring ballooning debts and having to sell off cherished family assets, or borrow from friends.
The government faces a serious structural and systemic problem in our fiscal space.
Based on the 2021 budget, I calculated that emoluments and retirement gobble up 47.4 percent of revenue. Another 16.5 percent is wasted on debt servicing, which at current debt levels will be much more.
These are what we call sunk costs, unless value can be extracted out of it. Apart from emoluments, a bloated executive and civil service requires even more funds for operations.
After all with no additional money or projects, these people cannot do their jobs right?
Take for example distribution of food packages to the needy and even during disasters.
The current modus operandi is to provide lavish packaged boxes with VIP pictures, at a dedicated ceremony, and the recipients having to line-up, wasting half their productive day.
Compare this to providing an e-commerce voucher with the food stuff delivered at the door.
Anwar, then opposition leader, claimed RM2 billion was spent on foreign consultants to draw up the 12th Malaysia Plan.
During my time in the civil service, all the agencies, coordinated by the Economic Planning Unit, would brainstorm and prepare the development plans.
It seems the trend now is to farm out contracts or consultancies for what the civil servants were employed to do.
Anwar has promised a new paradigm of governance, not business-as-usual.
Economy Minister Rafizi Ramli said doing the same thing over and over again expecting different results is insanity.
He claimed he is bursting with ideas and is impatient to implement it.
Between Anwar and Rafizi, they control the operating and development budgets.
With a recession predicted this year, an expansionary deficit budget may be necessary, but adding on more debts would be suicidal to the economy.
Whoever said running a government is easy, unless of course if we have plundering hands all over.
We look forward to the new 2023 productive “Madani” budget.
*Raman Letchumanan is a former senior fellow at the Nanyang Technological University of Singapore, a former director at the Minister of Science, Technology and Environment, and a former head of environment/disaster management at the Asean Secretariat in Jakarta.*
Malaysia’s Economy In On Life Support
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