OCT 25 — Economic analysts, rating agencies and policymakers have expressed their concerns on the broadening risk of “twin deficits” in several countries. Malaysia is one of the countries that encounters the potential due to the shrinking of national current-account surplus and its continuous budget deficits every year. The Fitch-Ratings agency warns about the country’s poor economic performance and thus, downgrades its credit-rating of the Malaysian economy from stable to negative. Dozens of private investors have shown their dwindling interest in local market, but the BN government has continued its lavish spending on unnecessary purchases.
A gloomier outlook of the economy plus the low-recovering speed of BRICS countries have caused emerging markets to become more vulnerable. Whether the Federal Reserve will continue its long-term asset purchase through Quantitative Easing (QE) still remains obscure. Prime Minister Datuk Seri Najib Tun Razak has pledged to trim the fiscal deficit from 4.5 per cent to 4 per cent this year. However, this may be piecemeal reforms and blanket approaches seemed far from forthcoming. To maintain macroeconomic stability with a sustainable pace of growth requires bold and courageous effort but with his lacklustre reform policies it will seem impossible to meet the requirement of its undertaking.
Pakatan’s 2014 shadow budget foresees its capabilities to reduce the concerns over the potential of “twin deficits” by proposing a balanced fiscal reform with a greater prospect of fostering the people’s needs. Below are excerpts from Pakatan Rakyat’s 2014 Budget that address the underlying fiscal consolidation:
- To break the vicious cycle of mounting public debt in excess of RM500 billion and the ever growing annual debt service charges of approximately RM20 billion at present of about 10 per cent of annual operating expenditure
- To preserve economic resilience in the medium-to-long term in the face of very challenging global economic and financial environment
- Move away from “borrowed-growth” model with a rising share of the government spending-led economic activities
Malaysia’s relatively large public debt at 53.3 per cent of GDP was also one of the key issues behind the downgrade of Malaysia’s economic outlook by Fitch-Ratings. The ballooning public debt in Malaysia is narrowly reaching its debt ceiling due to government wastages and corruption that breeds easily under the BN government. Therefore, Pakatan Rakyat proposed a refining policy to curb these problems by increasing spending efficiency and start its work on the rationalisation process.
Pakatan holds a radical approach to encourage wise spending by introducing a broad-cost rationalisation programme in all ministries and government departments to achieve an across the board 10 per cent cut in annual operating expenditure. The 2012 Auditor-General Report has drawn heavy criticism from every quarters due to the inefficiency of the government agency’s handling of taxpayer’s money. This led to the conclusion that Najib’s announcement of policy reforms is merely cosmetic.
Pakatan has unveiled its cost-containment and savings initiative programmes through specific measures such as:
- Implementation of Liquidated Ascertained Damage (LAD) system
This measure is a bold attempt to punish parties that do not fulfil their responsibilities within the timeframe. They must compensate for the loss incurred in the project. Hence, this system should ensure all parties are heavily dedicated to complete their assigned project without allocations of additional cost. The regular practice of this policy may avoid any postponement of projects from its original planning
- Qualitative Assessment for Government projects.
Pakatan Rakyat aspires to perform an in-depth assessment of projects from both qualitative and quantitative aspect. Furthermore, government projects will undergo stricter regulation to comply with international standards.
These measures are vital to the development of the nation’s economy, while at the same time comply with Pakatan’s effort to provide a comprehensive solution of the rising deficit each year. Dealing with the concerns about the twin deficits’ threat to Malaysia’s economy, Pakatan’s shadow budget unleashes its measures to reduce government spending through practical solutions. This could help to boost government’s savings estimated at RM 5.7 billion each year.
Pakatan also anticipates a lower budget deficit over GDP this year at 3.2 per cent as compared to the government projection at 4 per cent this year from 4.5 per cent in 2012 while it targets a higher pace of growth estimated a 5.2 per cent due to efficient government spending. It holds the view that spending efficiency is a massive consideration while trimming the deficit. Some of the concerns about Malaysia’s mounting public debt at 53 per cent of GDP this year might be well addressed if the current government knows how to spend wisely. Hence, a few measures from Pakatan’s shadow budget 2014 can be an eye-opener of how the rationalisation of government spending will help to curb the potential of “twin-deficits” in Malaysia.
*Muhammad Nazreen is currently associated with Institut Rakyat, a Keadilan-affiliated think-tank. He can be reached at [email protected]
** This is the personal opinion of the writer and does not necessarily represent the views of The Malay Mail Online.