Finance Minister and Prime Minister Datuk Seri Najib will present Budget 2010 in Parliament on 23 October.
Every year, come this time, there is plenty of speculation about what “goodies” the government will “give” the rakyat. And every year, after the Budget is announced, there are the usual proclamations of “it’s a people’s budget”, “it’s people-friendly”, “it’s a growth budget”.
You may walk away happy with a small income tax cut, or on the fact that cigarette and beer taxes have not gone up. But there is much more to the Budget than just those few ringgit you saved.
The real “goodies” are hidden away from public view. RM47.8bn is being spent on education and training this year. That’s equivalent to RM8,000 for each student in public education. And yet, so many parents feel compelled to send their children to private schools or for private tuition. So, what happened to all that money?
Also, did you know we spend the same amount on defence - RM13.7bn – as we do on healthcare ? Do you think that is the right choice?
My upcoming book, The Budget: How the government is spening OUR money is a guide to how our government raises its funds and how it spends all that money. The federal government alone spends about RM200bn per year. On top of that, there is also spending by state and local governments. Do you think you got your money’s worth?
The first of its kind in Malaysia, this book explains in plain English where the federal government gets its income and what it spends it on. Interested citizens and taxpayers will find this an accessible read, while professionals will, for the first time, find the numbers compiled in a concise format.
Or, just buy it for the illustrations by Antares!
It’ll be in bookstores by mid-October. If you’d like to a copy delivered to you by mail, please send your name, address and phone number to budgetbook@chichang.net.
Publishers REFSA will contact you just before the book hits the shelves. Indicative price is RM25 + RM5 postage within Malaysia.
Showing posts with label Budget and govt spending. Show all posts
Showing posts with label Budget and govt spending. Show all posts
Tuesday, September 15, 2009
Wednesday, September 2, 2009
Should the CEO also be the CFO?
The two most powerful positions in corporate management are of chief executive officer (CEO) and chief financial officer (CFO). The CEO is the boss and sets overall direction. The CFO controls the purse-strings.
Quite often good CEOs and CFOs will disagree. CEOs by nature and expectation have to seek new growth opportunities to expand corporate profits. They would tend to emphasise the rewards over the risks. CFOs are entrusted with financial stewardship. And when it comes to stewardship, being conservative and risk-averse are the preferred traits.
So, that’s how it works in the corporate world. No reasonable board of directors would countenance the CEO also holding the CFO position. There is just too much at stake to have one person holding the two most senior positions.
That’s also how it’s supposed to work in government. The prime minister leads and the finance minister tells him what the government can afford. Perhaps the most celebrated such pair in recent history was telegenic British prime minister Tony Blair and dour Chancellor Gordon Brown.
Over here in Malaysia though, no eyebrows are raised that the prime minister is also the finance minister. This practice began during prime minister Mahathir’s tenure, was continued by Abdullah Badawi and now Najib has continued the practice.
This might explain the deteriorating state of government finances. By 2009, we would have run 12 consecutive years of budget deficits. Our federal government debt alone is expected to reach RM414bn in 2009. This is more than double the RM206bn level nine years ago in 2000.
Put in other ways:
1. Federal government debt today is more than half the size of our entire RM741bn economy.
2. This is a burden that our youth will have to repay. The debt is equivalent to RM20,700 per person, based on about 20m youths (defined as Malaysians aged 39 and below.
Note that the actual debt burden is higher. The RM414bn number excludes debt incurred by other government-linked corporations (GLCs) such as PLUS Expressways and Tenaga Nasional. Other countries which have not embarked on extensive privatisation programmes incur road construction and electrification costs as part of their national budgets. PLUS and Tenaga alone among the GLCs have RM33.3bn of borrowings – equivalent to 8% to the federal government debt. On top of that, there is borrowing by other government-linked entities such as Syarikat Perumahan Nasional Berhad (SPNB), Putrajaya Holdings Sdn Bhd …..
Even more concerning is that we incurred the increasing debt even while we reaped the windfall gains from high oil prices. More in my up-coming book ….
Quite often good CEOs and CFOs will disagree. CEOs by nature and expectation have to seek new growth opportunities to expand corporate profits. They would tend to emphasise the rewards over the risks. CFOs are entrusted with financial stewardship. And when it comes to stewardship, being conservative and risk-averse are the preferred traits.
So, that’s how it works in the corporate world. No reasonable board of directors would countenance the CEO also holding the CFO position. There is just too much at stake to have one person holding the two most senior positions.
That’s also how it’s supposed to work in government. The prime minister leads and the finance minister tells him what the government can afford. Perhaps the most celebrated such pair in recent history was telegenic British prime minister Tony Blair and dour Chancellor Gordon Brown.
Over here in Malaysia though, no eyebrows are raised that the prime minister is also the finance minister. This practice began during prime minister Mahathir’s tenure, was continued by Abdullah Badawi and now Najib has continued the practice.
This might explain the deteriorating state of government finances. By 2009, we would have run 12 consecutive years of budget deficits. Our federal government debt alone is expected to reach RM414bn in 2009. This is more than double the RM206bn level nine years ago in 2000.
Put in other ways:
1. Federal government debt today is more than half the size of our entire RM741bn economy.
2. This is a burden that our youth will have to repay. The debt is equivalent to RM20,700 per person, based on about 20m youths (defined as Malaysians aged 39 and below.
Note that the actual debt burden is higher. The RM414bn number excludes debt incurred by other government-linked corporations (GLCs) such as PLUS Expressways and Tenaga Nasional. Other countries which have not embarked on extensive privatisation programmes incur road construction and electrification costs as part of their national budgets. PLUS and Tenaga alone among the GLCs have RM33.3bn of borrowings – equivalent to 8% to the federal government debt. On top of that, there is borrowing by other government-linked entities such as Syarikat Perumahan Nasional Berhad (SPNB), Putrajaya Holdings Sdn Bhd …..
Even more concerning is that we incurred the increasing debt even while we reaped the windfall gains from high oil prices. More in my up-coming book ….
Tuesday, May 19, 2009
Terengganu’s ‘Sovereign Wealth Fund’ is anything but
“The country’s first state-established sovereign wealth fund, Terengganu Investment Authority (TIA), with an initial fund of RM11bil, has identified several high-impact investment projects in the tourism, energy and agriculture sectors in the state and around the country,” reports the Star today, Tuesday May 19.
Unfortunately, as with most financial-related topics associated with the Barisan Nasional (BN) government, there are far more questions than answers. Here are just three big ones, to start off with:
1) First, funding. TIA will reportedly raise RM5bn in bonds backed by a federal government guarantee. PM Najib reportedly said “There’s no money involved” (The Edge Daily, May 19). Hello? Has he been keeping up to-date on the multi-billion ringgit Klang Port scandal which involved dubiously granted government guarantees?
The bigger question though, is why TIA needs a government guarantee in the first place. TIA will also reportedly have RM6bn ‘raised through the assignment to TIA of some of the future oil royalties due to the state.” RM6bn is already a huge some of money to start off with. Why the rush to add RM5bn of federal government-guaranteed debt on top of that?
2) Second, objectives. TIA chief executive officer and former executive partner at Accenture, Shahrol Halmi said, “The key objectives of TIA’s investment strategy are … ensure the development of long-term sustainable economic and social programmes for the state.”
Elsewhere in the world, the whole point of sovereign wealth funds (SWFs) is to invest windfall gains from high resource prices wisely, OUTSIDE the home country. SWFs came about because resource-rich countries found that their own economies were too small to effectively deploy all the income coming in from their trade surpluses. Rather than have too much money chasing to few goods, leading to unproductive investments and domestic property price inflation, countries such as Norway chose to set up SWFs in order to effectively invest the money overseas for a rainy day.
Over here, TIA is proposing to invest within Terengganu. Yes, a major political issue is the people of oil-rich Terengganu do not appear to have reaped any benefits from record-high oil prices. But, that’s an issue with the BN federal and state government delivery mechanism. How does TIA fit in with the local government? In fact, the presence of TIA could actually deter investment by private investors, as it could be perceived that TIA will be given undue advantages. SWFs should have no business in their home countries!
3) Third, accountability. Media reports say TIA will have a “triple-tier check and balance system comprising the board of directors, a board of advisers and a senior management team.” I say a system is only as good as its people. Note that the board of advisers will include the Prime Minister or the Finance Minister, in his stead. Far better if politicians stay out completely and leave it to professionals.
Also, the best accountability is via public disclosure. Dare we hope that TIA will adopt best practices as per the Government Pension Fund of Norway? (Contrary to its name, this fund is entirely funded by surplus wealth from Norwegian petroleum income – no government guarantees! – and is professionally managed). I invite you to check their website. Information including ALL the shares held by the fund are available for quick and easy download!
I have other issues, including the so-called “experienced personnel” involved in running the fund. Right now, the list is very narrow and, by accident or design, seems to consist primarily of one ethnic group only. I know for a fact, having worked for MNCs, that financial services talent encompasses the entire globe from Caucasians to sub-continent Indians to mainland Chinese. If TIA truly intends to be world-class, its hiring policies need to be world-class too.
Unfortunately, as with most financial-related topics associated with the Barisan Nasional (BN) government, there are far more questions than answers. Here are just three big ones, to start off with:
1) First, funding. TIA will reportedly raise RM5bn in bonds backed by a federal government guarantee. PM Najib reportedly said “There’s no money involved” (The Edge Daily, May 19). Hello? Has he been keeping up to-date on the multi-billion ringgit Klang Port scandal which involved dubiously granted government guarantees?
The bigger question though, is why TIA needs a government guarantee in the first place. TIA will also reportedly have RM6bn ‘raised through the assignment to TIA of some of the future oil royalties due to the state.” RM6bn is already a huge some of money to start off with. Why the rush to add RM5bn of federal government-guaranteed debt on top of that?
2) Second, objectives. TIA chief executive officer and former executive partner at Accenture, Shahrol Halmi said, “The key objectives of TIA’s investment strategy are … ensure the development of long-term sustainable economic and social programmes for the state.”
Elsewhere in the world, the whole point of sovereign wealth funds (SWFs) is to invest windfall gains from high resource prices wisely, OUTSIDE the home country. SWFs came about because resource-rich countries found that their own economies were too small to effectively deploy all the income coming in from their trade surpluses. Rather than have too much money chasing to few goods, leading to unproductive investments and domestic property price inflation, countries such as Norway chose to set up SWFs in order to effectively invest the money overseas for a rainy day.
Over here, TIA is proposing to invest within Terengganu. Yes, a major political issue is the people of oil-rich Terengganu do not appear to have reaped any benefits from record-high oil prices. But, that’s an issue with the BN federal and state government delivery mechanism. How does TIA fit in with the local government? In fact, the presence of TIA could actually deter investment by private investors, as it could be perceived that TIA will be given undue advantages. SWFs should have no business in their home countries!
3) Third, accountability. Media reports say TIA will have a “triple-tier check and balance system comprising the board of directors, a board of advisers and a senior management team.” I say a system is only as good as its people. Note that the board of advisers will include the Prime Minister or the Finance Minister, in his stead. Far better if politicians stay out completely and leave it to professionals.
Also, the best accountability is via public disclosure. Dare we hope that TIA will adopt best practices as per the Government Pension Fund of Norway? (Contrary to its name, this fund is entirely funded by surplus wealth from Norwegian petroleum income – no government guarantees! – and is professionally managed). I invite you to check their website. Information including ALL the shares held by the fund are available for quick and easy download!
I have other issues, including the so-called “experienced personnel” involved in running the fund. Right now, the list is very narrow and, by accident or design, seems to consist primarily of one ethnic group only. I know for a fact, having worked for MNCs, that financial services talent encompasses the entire globe from Caucasians to sub-continent Indians to mainland Chinese. If TIA truly intends to be world-class, its hiring policies need to be world-class too.
Wednesday, March 18, 2009
Trouble for SMEs in mini-budget
Overshadowed by the crowing RM60bn headlines surrounding the mini-budget announced last Tuesday is a measure imposing double levies on foreign workers. This applies to both new and existing foreign workers.
The intentions behind this move are good - to raise employment opportunities for Malaysians, but the timing is terrible. Implementing this could actually lead to even greater unemployment for Malaysians and fewer job opportunities as our businesses, including small-and-medium enterprises (SMEs) have become addicted to cheap labour.
The Barisan Nasional government has for too long now pandered to the business community's lobby for cheap labour and paid too little attention to productivity. Businesses kept asking for cheap labour, which the government obligingly delivered by freely granting work permits for lowly skilled Indonesians, Bangladeshis, Myanmese ...As many as 2,000 approvals PER DAY were granted at the peak, according to Sunday Star report (Mar 15)! The result: no incentive for Malaysian employers and employees to invest in productivity-enhancing measures and low incomes and low standards of living for working-class Malaysians.
The right time to move up the value-added curve is when times are good and companies have extra profits to invest. The worst time is now when businesses are struggling with collapsing revenues. It is a business fact - costs are stickier than revenues. Customers can stop buying your product overnight. But you can't turn around and reduce your capacity overnight. It also works in reverse - if sales go up 10%, your costs don't go up by 10% immediately. So in good times, profit grows quickly; but in bad times, profits can quickly turn into losses as revenues plunge faster than costs.
This double-levy initiative serves to increase business costs at a time when businesses are struggling. It could well tip barely-afloat enterprises into bankruptcy. And that would mean Malaysians would also be thrown out of work, along with the cheap foreign labour. Of course there would be far more cheap foreign workers affected than Malaysians, but this is akin to throwing the baby out along with the bath water. We need to keep whatever employment opportunities we have.
Here's a better idea. Khazanah, despite its miserable execution record, has been given RM10bn to spend under the latest stimulus package. Instead of giving it to Khazanah to fritter away on various projects of 'long-term' benefit (by which time we are all dead, as Keynes astutely observed), let's help small and medium enterprises (SMEs) support Malaysians by offering them a cash payment for each Malaysian employed instead.
It could work this way: For each Malaysian employed, who earns less than RM2,500/month, the government will pay RM1,000 of the wages. This will narrow the gap between the cheap foreign labour and Malaysians, encouraging SMEs to employ locals while still keeping their costs competitive. RM10bn will be enough to cover 420,000 Malaysians for 2 years! After that, the government can slowly reduce this support, say to RM800 per year, then RM500, then zero. This will give both employers and employees time to reinvest in productivity enhancements which result in higher wages AND higher profits.
Before anyone accuses me of plagiarism - let me say here that Singapore is implementing a similar move.
The intentions behind this move are good - to raise employment opportunities for Malaysians, but the timing is terrible. Implementing this could actually lead to even greater unemployment for Malaysians and fewer job opportunities as our businesses, including small-and-medium enterprises (SMEs) have become addicted to cheap labour.
The Barisan Nasional government has for too long now pandered to the business community's lobby for cheap labour and paid too little attention to productivity. Businesses kept asking for cheap labour, which the government obligingly delivered by freely granting work permits for lowly skilled Indonesians, Bangladeshis, Myanmese ...As many as 2,000 approvals PER DAY were granted at the peak, according to Sunday Star report (Mar 15)! The result: no incentive for Malaysian employers and employees to invest in productivity-enhancing measures and low incomes and low standards of living for working-class Malaysians.
The right time to move up the value-added curve is when times are good and companies have extra profits to invest. The worst time is now when businesses are struggling with collapsing revenues. It is a business fact - costs are stickier than revenues. Customers can stop buying your product overnight. But you can't turn around and reduce your capacity overnight. It also works in reverse - if sales go up 10%, your costs don't go up by 10% immediately. So in good times, profit grows quickly; but in bad times, profits can quickly turn into losses as revenues plunge faster than costs.
This double-levy initiative serves to increase business costs at a time when businesses are struggling. It could well tip barely-afloat enterprises into bankruptcy. And that would mean Malaysians would also be thrown out of work, along with the cheap foreign labour. Of course there would be far more cheap foreign workers affected than Malaysians, but this is akin to throwing the baby out along with the bath water. We need to keep whatever employment opportunities we have.
Here's a better idea. Khazanah, despite its miserable execution record, has been given RM10bn to spend under the latest stimulus package. Instead of giving it to Khazanah to fritter away on various projects of 'long-term' benefit (by which time we are all dead, as Keynes astutely observed), let's help small and medium enterprises (SMEs) support Malaysians by offering them a cash payment for each Malaysian employed instead.
It could work this way: For each Malaysian employed, who earns less than RM2,500/month, the government will pay RM1,000 of the wages. This will narrow the gap between the cheap foreign labour and Malaysians, encouraging SMEs to employ locals while still keeping their costs competitive. RM10bn will be enough to cover 420,000 Malaysians for 2 years! After that, the government can slowly reduce this support, say to RM800 per year, then RM500, then zero. This will give both employers and employees time to reinvest in productivity enhancements which result in higher wages AND higher profits.
Before anyone accuses me of plagiarism - let me say here that Singapore is implementing a similar move.
Wednesday, March 11, 2009
RM60bn stimulus – includes RM0.5bn for toll concessionaires!
Extract from Point 32 of the speech by Finance Minister YAB Dato' Sri Najib yesterday:
“The Government will also provide RM480 million to ensure that toll rates are not increased.”
Bear in mind this is just the additional amount of compensation to avert further increases in toll rates. The government is already compensating the concessionaires for past toll rate hikes which were not implemented. I estimate compensation to PLUS alone is RM700m per year. That will go up to RM1.5bn in 2011, if PLUS is not allowed to increase rates.
There is no need for this. The DAP has presented a concrete, viable proposal for a toll-free PLUS by 2016, at no additional cost to the government.
Hmm. Here's a thought. Khazanah has a RM10bn allocation, and a chequered execution record. I'd be very happy if it spent that RM10bn on buying out the rest of PLUS and making it toll-free even earlier!
“The Government will also provide RM480 million to ensure that toll rates are not increased.”
Bear in mind this is just the additional amount of compensation to avert further increases in toll rates. The government is already compensating the concessionaires for past toll rate hikes which were not implemented. I estimate compensation to PLUS alone is RM700m per year. That will go up to RM1.5bn in 2011, if PLUS is not allowed to increase rates.
There is no need for this. The DAP has presented a concrete, viable proposal for a toll-free PLUS by 2016, at no additional cost to the government.
Hmm. Here's a thought. Khazanah has a RM10bn allocation, and a chequered execution record. I'd be very happy if it spent that RM10bn on buying out the rest of PLUS and making it toll-free even earlier!
RM60bn? Not!
The newspapers today headline the RM60bn total 'package'.
It's not really that big. First of all, RM7bn of that RM60bn is due to “off-budget projects” and private finance initiatives (PFIs). “Off-budget” projects by definition are not undertaken by the government. What it did was corral certain projects done by GLCs (government-linked corporations), such as the RM2bn LCCT, into this package to help create the nice big headline number. Similarly, PFIs are led by the private sector. They are not new spending.
That leaves us with RM53bn. Still a fairly large number. But really, only a small fraction of that is likely to benefit the rakyat directly and immediately. Here's where the big money goes:
1)RM10bn to Khazanah to fund investments “over a two year period”. This is not going to help the rakyat today. Khazanah's record, by the way, is hardly exemplary. I challenge you to name 3 successes at Khazanah under its much-vaunted new leadership since 2004. Telekom continues to burn money overseas while providing Malaysians with sub-par services; Proton is still dependent on protectionist policies, consider the losses at Silterra; Malaysia Airports' LCCT is a disgrace …
2)RM25bn for guarantee funds, under which the government guarantees loans to encourage banks to lend. A good idea, which I had blogged on. But here is the rub. SME (small and medium-scale enterprises) get only RM5bn worth of guarantees. That's not even 4% of the total c. RM130bn loans outstanding. Bonds, ie debt issued by large corporations, get the largest chunk - RM15bn in total. And the balance RM5bn goes to loans for “Industry Restructuring”. Also, bear in mind this is not real spending – the government is liable only if the borrowers default.
Which takes us down to the real, direct government spend totalling RM18b (60-7-10-25=18). Bear in mind though – that's over two years. So it's only RM9bn per year. A drop in the ocean. But we're in trouble and we'll take whatever there is. Transparent and fast execution will help.
But the government did did not break down in detail how the monies will be spent. The record isn't comforting. As of to-date, just RM1bn of the RM7bn first stimulus package announced in Nov has been spent, according to our Finance Minister.
We are in a recession. Speed is of the essence. And so is maximising the effectiveness of government spending. How hard can it be for the BN government to put on a website the details of the various projects? For example, if it is a bridge project, please name the description of the bridge, the location, the person awarded to, the contract sum, the contract period and henceforth ...
Click here for more from Tony Pua and Jeff Ooi.
It's not really that big. First of all, RM7bn of that RM60bn is due to “off-budget projects” and private finance initiatives (PFIs). “Off-budget” projects by definition are not undertaken by the government. What it did was corral certain projects done by GLCs (government-linked corporations), such as the RM2bn LCCT, into this package to help create the nice big headline number. Similarly, PFIs are led by the private sector. They are not new spending.
That leaves us with RM53bn. Still a fairly large number. But really, only a small fraction of that is likely to benefit the rakyat directly and immediately. Here's where the big money goes:
1)RM10bn to Khazanah to fund investments “over a two year period”. This is not going to help the rakyat today. Khazanah's record, by the way, is hardly exemplary. I challenge you to name 3 successes at Khazanah under its much-vaunted new leadership since 2004. Telekom continues to burn money overseas while providing Malaysians with sub-par services; Proton is still dependent on protectionist policies, consider the losses at Silterra; Malaysia Airports' LCCT is a disgrace …
2)RM25bn for guarantee funds, under which the government guarantees loans to encourage banks to lend. A good idea, which I had blogged on. But here is the rub. SME (small and medium-scale enterprises) get only RM5bn worth of guarantees. That's not even 4% of the total c. RM130bn loans outstanding. Bonds, ie debt issued by large corporations, get the largest chunk - RM15bn in total. And the balance RM5bn goes to loans for “Industry Restructuring”. Also, bear in mind this is not real spending – the government is liable only if the borrowers default.
Which takes us down to the real, direct government spend totalling RM18b (60-7-10-25=18). Bear in mind though – that's over two years. So it's only RM9bn per year. A drop in the ocean. But we're in trouble and we'll take whatever there is. Transparent and fast execution will help.
But the government did did not break down in detail how the monies will be spent. The record isn't comforting. As of to-date, just RM1bn of the RM7bn first stimulus package announced in Nov has been spent, according to our Finance Minister.
We are in a recession. Speed is of the essence. And so is maximising the effectiveness of government spending. How hard can it be for the BN government to put on a website the details of the various projects? For example, if it is a bridge project, please name the description of the bridge, the location, the person awarded to, the contract sum, the contract period and henceforth ...
Click here for more from Tony Pua and Jeff Ooi.
Sunday, March 8, 2009
2nd stimulus package will be most effective in the rakyat's hands
Not even 10% of the RM7bn 1st stimulus package announced in November last year has been delivered. The Second Finance Minister confessed in Parliament that just RM568m, 8%, of the total had been spent as of February.
Even as we wonder how, where and when the balance of that first RM7bn will be spent, the BN is set to present in Parliament this Tuesday its 2nd stimulus package.
I expect the usual slew of various projects totalling billions and talk of improving government efficiency, with little to show after the media ink has dried on the subsequent approving comments by sycophants.
Given the slow pace and leakages in BN government implementation that we have grown accustomed to, there will be far quicker and greater impact if the funds are put directly into the rakyat’s hands instead. Here are two proposals from me:
1. Support payments to the poorest households. I suggest RM1,000 per month be paid to the 30% of EPF contributors with the lowest incomes. 30% of 5.4m active contributors = 1.6m workers * RM12,000 for one year = RM19.5bn. The multiplier effect from this will be substantial as these contributors will be spending primarily on local products and services, helping to support the domestic economy.
2. Banks have been cutting credit lines, exacerbating the downturn as even good businesses have to curtail activities due to the lack of financing. The government can help with a Special Risk-sharing Initiative (SRI) similar to that proposed by Singapore in its budget. Under this SRI, the government will share the risk of these loans should they turn sour. Banks will still be responsible for assessing credit and sourcing the customers, but if the government agrees to share 50% of the risk of these loans, banks will be more willing to grant credit. SMEs account for c. RM130bn of total loans. Total exposure would perhaps be RM16bn, assuming the government takes 25% of the total and in the unlikely event they all go sour. But in the meantime, this may just be the tonic to alleviate the credit crunch faced by Malaysian SMEs.
Financing the spending is where we run into difficulties, and which is why we have the headline number being bandied about now sharply reduced to just RM10bn, instead of the RM30bn or so being touted earlier. The profligate spending by the BN government during the years of plenty is haunting us now. Unlike, say, the governments of Singapore and Australia which ran budget surpluses during those years, which they are now using to mitigate the recession, the BN government has been incurring deficits and growing our national debt.
The prospect of larger deficits has prompted ratings agencies to cut their credit ratings for Malaysia, and is a part of the reason for the slide in our ringgit's value. So, as a first step, instead of just spending more money, we must look to at least 10% of savings from current government procurement. The 2008 government budget called for c. RM190bn of total spending. Save just 10%, for example from better procurement practices without using consultants and agents, and we would have RM19bn – enough for the EPF support payments!
Even as we wonder how, where and when the balance of that first RM7bn will be spent, the BN is set to present in Parliament this Tuesday its 2nd stimulus package.
I expect the usual slew of various projects totalling billions and talk of improving government efficiency, with little to show after the media ink has dried on the subsequent approving comments by sycophants.
Given the slow pace and leakages in BN government implementation that we have grown accustomed to, there will be far quicker and greater impact if the funds are put directly into the rakyat’s hands instead. Here are two proposals from me:
1. Support payments to the poorest households. I suggest RM1,000 per month be paid to the 30% of EPF contributors with the lowest incomes. 30% of 5.4m active contributors = 1.6m workers * RM12,000 for one year = RM19.5bn. The multiplier effect from this will be substantial as these contributors will be spending primarily on local products and services, helping to support the domestic economy.
2. Banks have been cutting credit lines, exacerbating the downturn as even good businesses have to curtail activities due to the lack of financing. The government can help with a Special Risk-sharing Initiative (SRI) similar to that proposed by Singapore in its budget. Under this SRI, the government will share the risk of these loans should they turn sour. Banks will still be responsible for assessing credit and sourcing the customers, but if the government agrees to share 50% of the risk of these loans, banks will be more willing to grant credit. SMEs account for c. RM130bn of total loans. Total exposure would perhaps be RM16bn, assuming the government takes 25% of the total and in the unlikely event they all go sour. But in the meantime, this may just be the tonic to alleviate the credit crunch faced by Malaysian SMEs.
Financing the spending is where we run into difficulties, and which is why we have the headline number being bandied about now sharply reduced to just RM10bn, instead of the RM30bn or so being touted earlier. The profligate spending by the BN government during the years of plenty is haunting us now. Unlike, say, the governments of Singapore and Australia which ran budget surpluses during those years, which they are now using to mitigate the recession, the BN government has been incurring deficits and growing our national debt.
The prospect of larger deficits has prompted ratings agencies to cut their credit ratings for Malaysia, and is a part of the reason for the slide in our ringgit's value. So, as a first step, instead of just spending more money, we must look to at least 10% of savings from current government procurement. The 2008 government budget called for c. RM190bn of total spending. Save just 10%, for example from better procurement practices without using consultants and agents, and we would have RM19bn – enough for the EPF support payments!
Wednesday, March 4, 2009
Defence Ministry steadily reducing open tenders
Tian Chua (PKR-Batu) asked in Parliament the total value of purchases or projects carried out by the Defence Ministry from 2006 until last year. In his written reply on 3 Mar, as reported by Bernama, current Defence Minister Datuk Seri Abdullah Badawi gave the following details:
1. 2006: RM6.7bn spent, of which 31% or RM2.1bn was via direct negotiations;
2. 2007: RM5.2bn spent, 33% or RM1.7bn via direct negotiations;
3. 2008: RM8.2bn spent, 54% or RM4.4bn was via direct negotiations.
Measured by number of contracts:
1. 2006: 52 (9%) of 609 acquisitions via direct negotiations;
2. 2007: 95 (19%) of 497 acquisitions; and
3. 2008: 100 (21%) of 477 acquisitions.
So, whichever way you look at it, the Defence Ministry has been handing out more and more negotiated contracts. Granted, some deals need to be negotiated due to national security issues. But do note – the Ministry has spent RM20bn in the last three years alone. I haven't heard of any significant new, sophisticated weaponry being acquired. But then again, I'm not a military expert. Anyone know any better? Also, an interesting follow-up question would be the amount of commissions and fees paid on these contracts.
Remember PM Abdullah only took over the Defence Ministry recently. These contracts were handed out under another minister. Let's hope past performance is not a guide to the future, in this case.
1. 2006: RM6.7bn spent, of which 31% or RM2.1bn was via direct negotiations;
2. 2007: RM5.2bn spent, 33% or RM1.7bn via direct negotiations;
3. 2008: RM8.2bn spent, 54% or RM4.4bn was via direct negotiations.
Measured by number of contracts:
1. 2006: 52 (9%) of 609 acquisitions via direct negotiations;
2. 2007: 95 (19%) of 497 acquisitions; and
3. 2008: 100 (21%) of 477 acquisitions.
So, whichever way you look at it, the Defence Ministry has been handing out more and more negotiated contracts. Granted, some deals need to be negotiated due to national security issues. But do note – the Ministry has spent RM20bn in the last three years alone. I haven't heard of any significant new, sophisticated weaponry being acquired. But then again, I'm not a military expert. Anyone know any better? Also, an interesting follow-up question would be the amount of commissions and fees paid on these contracts.
Remember PM Abdullah only took over the Defence Ministry recently. These contracts were handed out under another minister. Let's hope past performance is not a guide to the future, in this case.
Saturday, February 28, 2009
GDP growth decelerated sharply in 4Q08
As anticipated, by nearly everyone else except the BN government, economic (GDP) growth plunged in the last 3 months of 2008. Just 0.1% growth was reported. The jaded analyst in me is suspicious of this number, which just made it to positive territory. My prediction: Sometime in the near future, this number will be revised down and be in negative territory.
BN still has its head-in-the-sand. While it is flip-flopping on toll rate hikes and still predicting growth this year in 2009, those of us who work at real businesses instead of relying on government handouts know that recession is more likely.
Which makes the impending stimulus plan very crucial. Planned and executed well, it will help buffer Malaysians against this global economic downturn. But what happened to the first RM7bn stimulus in the first place? As an interested reader put it, “Can we as rakyat ask the government to table in parliament all the details of the projects that have benefited from the allocation. for example, if it is a bridge project, please name the description of the bridge, the location, the person awarded to, the contract sum, the contract period and henceforth ...”
BN still has its head-in-the-sand. While it is flip-flopping on toll rate hikes and still predicting growth this year in 2009, those of us who work at real businesses instead of relying on government handouts know that recession is more likely.
Which makes the impending stimulus plan very crucial. Planned and executed well, it will help buffer Malaysians against this global economic downturn. But what happened to the first RM7bn stimulus in the first place? As an interested reader put it, “Can we as rakyat ask the government to table in parliament all the details of the projects that have benefited from the allocation. for example, if it is a bridge project, please name the description of the bridge, the location, the person awarded to, the contract sum, the contract period and henceforth ...”
Monday, November 10, 2008
RM7bn stimulus plan – effective only if execution is transparent
So let’s focus on the Budget, and specifically, the RM7bn stimulus plan announced last week by Finance Minister Datuk Seri Najib Razak. A leading investment research house put it succinctly: “.. based on past experience … economic packages introduced by the government have not been effective in preventing the economy from rapidly slowing.”
1) RM1.6bn is allocated to various small scale projects – village roads and community halls, repairing schools …. Excellent. This is the type of spending I advocate – locally oriented with maximum immediate impact to the community and local economy.
2) RM1.0bn goes to education and skills training programmes. Another excellent move. Now is a good time to retrain and improve local employee productivity.
3) RM1.0bn towards bolstering public transport and better facilities for our men-in-uniform. Again, wonderful
Taking another case, who decides which private institutions get to run the training programmes? Forgive me for being cynical, but I see many “consultants” and “advisers” already counting their fees. To maximise the impact of these programmes, I call on the BN government to make public the specific project awards and the contractors. Better yet, put the projects out on open tender. Make it easy for anyone to apply. Let’s cut out the middle-men and the “consultants” and “advisors”.
Moving on the bits I am ambivalent about, RM1.5bn is going to building low and medium-cost houses, reviving abandoned projects and increasing the number of business premises in small towns. I fully support decent, affordable housing for all. But there is also a huge overhang of unsold properties. Instead of building more and adding to the supply, how about finding a way to utilise the existing stocks? And what is this about increasing the number of business premises? Commercial property development is best led by the private sector, not government.
Saturday, October 18, 2008
If your pay were cut …. Your budget will have to change
Your pay has been cut by 40%. What do you do? First, cut back on non-urgent items. That new mobile phone will have to wait. Next, stretch your remaining ringgit further. Shop around for the best deal on groceries, rent a DVD instead of going to the cinema, have your coffee at the local coffee-shop instead of the fancy chain ….
That Budget assumes oil at US$125/barrel. That Budget was also done at a time when crude palm oil (CPO) was closer to RM3,000/ton. Oil touched US$62 as I wrote this. CPO is at RM1,700 or so – down by nearly half. There will be far less income for Petronas and the government. Corporations will be earning less profit and paying less taxes; lots of people will also be earning less, paying less taxes and spending less.
Unfortunately, government options are limited. The normal response to a slowdown in external demand is to pump-prime, that is to run a Budget deficit, spending more locally to offset the smaller exports. But, Budget 2009, as presented and based on US$125 oil, is already in deficit to the tune of 3.6%. Government cannot spend any more. Quite the reverse. To maintain the deficit at 3.6%, it will have to cut back spending to match its smaller income.
PS Next post will be the week of 26 Oct. I currently intend to post weekly, usually on Wed.
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