Prime Minister Datuk Seri Najib Razak speaks at a news conference in Putrajaya yesterday to announce budget revisions as the country faces the impact of slumping global crude prices. – The Malaysian Insider pic by Nazir Sufari, January 21, 2015.The revised budget announced yesterday does not go far enough in preparing for a challenging economy this year, analysts say, citing operating expenditure which remains high.They argue that more money could have been saved in the bureaucracy’s operating expenditure to ensure that the country’s deficit does not worsen even if oil revenues drop.Putrajaya’s drive to boost public consumption as a way to collect more revenue could fall short, as people start scaling back spending in anticipation of higher inflation.Although they commend projects to rebuild areas devastated by the floods in Kelantan, Wan Saiful Wan Jan, who heads think tank Institute for Democracy and Economic Affairs (Ideas), said Putrajaya should not set pre-conditions on which company should get contracts.
Policy analyst Yin Shao Loong (pic, right), feels that the revised budget reflects a lack of appreciation for how bad the economy can get and a lack of precaution on how to deal with it when it worsens.He argues that Putrajaya’s revised growth projections of 4.5% to 5.5% does not take into account hostile global conditions which can hurt the local economy.“I think they only looked at the drop in oil prices and a weak ringgit. But my argument is that our direct and indirect trading partners are facing negative conditions in their own countries.“The European Union is still in a recession, China is going through a slow down and Japan is still in the doldrums. So our exports are not going to do well," said Yin, who is executive director of PKR-linked Institut Rakyat.When Budget 2015 was tabled in October last year, Putrajaya had forecasted that that gross domestic product (GDP) would grow between 5% and 6% this year.That budget was drafted on the assumption that oil prices would be between US$100 and US$105 per barrel. Oil prices have since fell to as low as US$48 per barrel.Oil revenue makes up to 30% of the government’s total earnings, but the country’s economy is also dependent on export-oriented manufacturing.In the revised budget announced yesterday, Putrajaya said growth would be between 4.5% and 5.5%.For Yin, the forecast should be between 4% and 5%, taking into account sluggish global economic conditions.“Of all our trading partners, only the US looks stronger but they face the risk of their shale oil industry collapsing because much of it is financed by junk bonds."Putrajaya announced that it was facing a revenue shortfall of RM13.8 billion due to low oil prices.In order to prevent the country’s budget deficit from going up from 3.5% to 3.9% of GDP, the government announced it was cutting RM5.5 billion from its projected operating expenditure of RM273.9 billion.
But Wan Saiful (pic, left) said more could have been cut from bureaucracy, especially from the Prime Minister's Department.“If the government was cutting spending, it is not doing enough. The PM’s Department itself is so big," he said.Yesterday, PKR lawmaker Rafizi Ramli claimed that the PM Department’s discretionary budget could be as high as RM7 billion.Yin claimed that a study by PKR on the 2012 and 2013 auditor-general reports on wastages in government spending showed that Putrajaya could save up to RM30 billion if the reports’ recommendations were carried out.“What is RM5.5 billion compared to RM30 billion that the government could have saved if it followed the A-G’s recommendations? The RM5.5 billion does not even address the revenue shortfall (of RM13.8 billon)," said Yin.Wan Saiful believes there are some good measures in the revised budget, such as money to rebuild areas in Kelantan damaged by the floods, but cautions that their effectiveness depend on execution.He also questions the need to prioritise local contractors when giving out projects to repair flood-hit schools, hospitals, roads and bridges in Kelantan and Terengganu, worth RM800 million.“If the aim is get the most value at the least cost, should it matter whether it is a local or foreign contractor? So, priority should be on who offers the best price, not whether it is local foreign."Similarly, the same principle should be applied to all the government procurement schemes instead of setting a 30% quota for local contractors, he added.Putrajaya had said that 30% of all annual procurement for government departments would be given to local companies, and local contractors would be favoured in contracts to rebuild infrastructure damaged by the floods.The measures, it said, were aimed at “accelerating private investment" and “enhancing private consumption".That last thrust also involved getting Malaysians and tourists to spend more by extending nationwide mega sales and waiving visa fees, especially for visitors from China.This strategy, said Wan Saiful, was tricky, given how consumers were becoming more frugal, as inflation is expected to rise after the Goods and Services Tax (GST) kicks in this April.“More people spending means the government can collect more in taxes. But the government has to be realistic about its expectations of how much it can collect."Instead of promoting mega sales, Yin argues that a better strategy is deal with the high rates of debt which Malaysian households are saddled with.It is estimated that total Malaysian household debt stands at 86% of GDP.“More consumption is counter to what people are feeling where they feel pressured to save," said Yin.“High levels of debt make them vulnerable to external shocks. If the economy worsens, they will default.“This revised budget is short on precautionary measures." – January 21, 2015.
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