As far as I know, this hasn’t been reported locally:
Malaysia Seeks World Bank Help to Cut Spending, Trim Deficit
Nov. 12 (Bloomberg) -- Malaysia will ask the World Bank to help in the country’s efforts to cut government spending as Prime Minister Najib Razak seeks to reduce the budget deficit from a 22-year high.
The nation is asking the Washington-based lender to review all areas of government expenditure, including how state contracts are awarded, to prevent waste from inefficiency, Second Finance Minister Ahmad Husni Hanadzlah said in an interview in Kuala Lumpur yesterday. Malaysia hopes the study will bolster the government’s credibility, he said.
“We just want a third party as a check and balance,” said Ahmad Husni, 58. An annual audit of spending at state agencies has shown “some negative findings and we hope that with the involvement of the World Bank, in the future we can see a clean sheet,” he said.
Narrowing the fiscal gap that dates to the Asian financial crisis more than a decade ago would help boost chances of lifting Malaysia’s credit rating, which is currently below that of China and Taiwan. Greater confidence in the Southeast Asian nation’s finances may also help bolster Najib’s efforts to lure investment and rejuvenate an economy that may be overtaken by neighboring Singapore this year.
Just as in the NKRA on corruption, this seems to me to be more about perceived rather than real results. And I’m not really convinced over the argument that we need to cut the deficit, as opposed to the level of borrowing relative to income. That might sound the same, but isn’t exactly – the first assumes that a balanced budget is a worthwhile goal (it isn’t), while the latter is more about a sustainable level of borrowing.
On the other hand (economists always have two hands!), some external bright light on the doings and goings on in government procurement would be a great incentive for the government to actually clean it up. What the Auditor General finds every year is shocking enough, but not much improvement has been forthcoming (or to be fair, seen to be forthcoming).
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Dear Hisham H,
ReplyDeleteInteresting post you have on this. Now I sort of understand your thoughts on the deficit.
I did my simulation of the Government deficit over here.
But first out of curiosity, how would you qualify level of borrowing as a % of income? Is it something like a Debt Service Ratio? Perhaps 60% of GDP is sort of a trigger point, no?
But alas, 60% of GDP is as good as given. We at Penumpang (before it was disbanded) have projected that on an optimistic basis that debt to nominal gdp will cross the 60% mark next year and remain at that level for some time. We at Penumpang are definitely on the opinion that the yield curve will rise as BNM is forced to raise interest rates due to a mismatch of demand vs. supply of Gomen paper.
(liquidity preference Wenger Khairy theory).
As to the crux of the matter, the Gomen need not tire the poor guys from the World Bank. The deficit is structural and whilst tales of the 20,000 screw driver make for good reading, it is not the core problem.
The core problem of the Gomen is
a) A very high debt service charge
b) A high emolument + pension budget
c) Unknown fixed charges for maintenance Putrajaya. Unknown cos we do not know how much it costs to rent all that floor space
d) Development budget inefficiency
PS: Penumpang is closed currently :-(
@Wenger
ReplyDeleteFor some reason or another your post got labelled as spam :)
I've looked at your simulation, nice work.
But you're lowballing the GDP estimates. Malaysia's long term average (30 years) is something like 8.5% nominal growth, and I'm expecting even faster growth over the next decade from the demographic transition and higher commodity prices, both of which also translate into higher tax revenue.
Technical note: you need to use the GDP deflator (includes export and import prices), not CPI inflation (domestic only prices). Over the last decade, the deflator has recorded higher average inflation than the CPI has (about +0.65% p.a.). The difference in median inflation is even higher (+1.2%).
Taking that together, I don't see why debt to GDP should cross 60% at all - it's already dropped in 2Q 2010, and I expect it to continue dropping.