By Raman Letchumanan

KUALA LUMPUR, Malaysia-I must say Prime Minister-cum-Finance Minister Datuk Seri Anwar Ibrahim has had good blessings and a relatively easy task in preparing, or rather revising, Budget 2023.

Presenting the largest budget on record at RM388.1 billion, he has tried to please everyone, but fell far short of fundamental reforms to tackle the accumulated intractable problems facing our public purse.

At best, he has postponed those reforms despite the looming recession and a global economy in crisis.

Anwar had everything going for him to make his maiden Budget 2023 stand out, namely:

(i) Anwar’s two-third majority in Parliament, while his predecessors had to be wary of their government being toppled by a budget vote.

(ii) Anwar just had to rework the draft Budget 2023 presented in Oct 2022, but the important lesson learnt was that a record budget loaded with goodies does not bring in votes, as UMNO sorely found later in GE15.

(iii) The unexpected spike in GDP of 8.7 percent in 2022 over the previous year, thereby projecting a revenue of RM291 billion in 2023.

(iv) Anwar is not constrained by unavoidable huge expenditures for Covid-19, stimulus packages, and socio-economic impacts of lock-downs.

(v) While accumulated debts of RM1.5 trillion present a challenge, this provided Anwar the opportunity to reign in corruption and embezzlement which he is doing admirably. Furthermore, the potential for recovery of funds misappropriated, and trimming down from the bloated previous budgets could make Budget 2023 a truly reformist budget, without compromising on deliverables.    

Many have analyzed Budget 2023 looking at specific items on the basis of ‘what’s there in it for me’. In particular, the chief of the civil servants’ union lamented there is no wage hike for them, despite getting a RM700 duit raya.

A merit-based competent civil service should not bite the hands that feed it.

My intention here is to go beyond these specific numbers and look at the bigger picture and the implications moving forward. However, I do recognize there are some innovative schemes introduced in this budget.

Missed opportunity for deep reforms

The record spending of RM388.1 billion consists of operating expenditure (OE) at 289.1 billion and development expenditure (DE) at 99 billion. The OE gobbles up almost all the projected revenue of RM291.5 billion.

It seems spending expands to match revenue. It would have been prudent to target a savings of at least 10 percent of revenue or about RM30 billion for the rainy days.

This should have been feasible if based on RM6 billion savings so far from flood mitigation and Jana Wibawa projects, and misappropriation based on the Auditor-General findings from a sampling of programs in 2020 and 2021. Much more savings can be obtained if such efforts are pursued throughout the course of the year.
Furthermore, the budget promises fiscal consolidation and reforms, digitalization and automation of services, efficiency in spending, enhanced transparency, debt affordability, targeted subsidies, a Task Force on Agency Reforms to promote innovation in public sector work culture and delivery, and consolidation of public institutions to prevent overlaps in functions.

All these initiatives should have been monetized contributing to a substantial reduction in operating and development budgets. What is the point of reforms if it does not lead to corresponding reduction of budget and better performance?

A prudent option would be if about RM30 billion of revenue is shifted to development expenditure as this will reduce borrowings and bring in more income. A budget cannot be said to be expansionary if it is merely used for non-revenue generating operating expenditure.

Just imagine the RM40 billion dividends from Petronas is not even enough to meet debt servicing charges of RM46 billion.

The budget claims to “strengthen economic and public finance resilience against future shocks”, but does not even cater for future supplementary budgets because of maximum spending of revenue now.

The reduction of the budget deficit from 5.5 percent to 5 percent in 2023 is mainly due to the increase in GDP. The budget claims to reduce the fiscal deficit to 3.2 percent by 2025. To me, all this is just empty talk, when we can’t even reduce the deficit now, when revenue is high.

Hardcore poverty eradication
I applaud Anwar for this bold move to eradicate hardcore poverty numbering about 136,000 households by the end of this year. RM750 million has been allocated for this purpose. I have expressed the need to eradicate hardcore poverty as soon as possible, and have made suggestions on how to go about it.

However, I am disappointed that the funds are allocated to the Economy Ministry. Already the Minister is talking about his “chilli farming, sambal processing, and nasi lemak vending” scheme. I think he needs to consult former minister M. Saravanan about how successful his NAAM foundation was in chilli farming.

Any able-bodied person can easily earn RM2,000 per month, and such jobs are plentiful but there are no takers. Cash-crop farming is highly risky and requires intensive labour, so much so prime private land is left idle if it is not used for plantation crops.

It is best that these funds are channeled directly to agriculture and plantation land development scheme agencies, both public and private, where most of the rural hardcore poor reside. 

These agencies can adopt them and with some financial incentives provide sustainable jobs as their permanent employees. This will be similar to the innovative public-private partnership for TVET in Budget 2023.

Adopt accrual-based accounting  

Malaysia is among the 30 percent of countries that has yet to adopt accrual based public sector accounting standards. I have written about how accrual-based accounting can prevent wastage, leakages and mismanagement of public funds, compared to the current cash-based accounting.

The Accountant-General and the Auditor-General are aware of the merit of accrual-based accounting. However, I don’t see anti-graft crusaders promoting it as this will be the best watchdog and whistleblower of public finance abuse, even before it occurs.

I would urge Economy Minister Rafizi Ramli, as a professional accountant himself, to adopt accrual-based accounting to manage the RM750 million hardcore poverty eradication program.  
The experience can lead to the government adopting accrual-based accounting for all its agencies and major programs.

*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.*