1. INTRODUCTION
With a shortfall to the subsidies – even with a top-up from Petronas – the state of nation is staring at an empty bowl after +60-year of “economic development” with no likely growth path in years ahead (Sudhave 2020), submerged in clientel capitalism (Weiss 2020) to pacific electorates with goodies, directionless with Vision 2020 blinded (Jomo 2020), and the Malay community has lost its conscious soul.
That the IMF has not indicated the country going bankrupt is not reassuring especially when the ratio of debt service payments to revenue accrued had reached 16.3% in 2021, and likely – based on the Budget 2022 – to exceed 18%. This means that for every RM$1 of government revenue, almost 20 sens is used for paying interests on debts. Of that amount is apart from the ability to repay the principal amounts on loans taken by the nation.
The federal government needs to borrow RM$181.49 billion, which is equivalent to 12.6% of gross domestic product (GDP) in 2020 according to the Ministry of Finance’s (MoF) Fiscal Policy Review 2021, of which, RM86.45 billion is allocated for deficit financing in 2020, which is substantially higher than RM51.49 billion in 2019.
2. STATE OF NATION
A nation consciously used to constant and consistent handouts will not survive for long. More so, when the subservient to subsidies has become a national ethos of burden privilege – a dependency to handouts and continuous assistance that not only bleeds the country but drops its growth path into a deepening hole :
A) The seriousness of politico-economic situation is that general government debt jumps to 76.0% of GDP in 2020 from 65.2% of GDP in 2019. The debt figures used by the Fitch Consultancy include officially reported “committed government guarantees” on loans, which are serviced by the government budget, and 1MDB’s net debt, equivalent in September 2020 to 12.6% and 1.3% of GDP, respectively. As at June 2022, RM10.84 billion had been used – from the 1MDB’s asset recovery funds kept in a trust account under the MOF, known as the Asset Recovery Trust Account (ARTA) – to repay 1MDB’s debt of RM$30billion outstanding as on 30th. June 2022; this ARTA fund still has a balance of RM8.83 billion currently, (theedgemarkets, 22/07/2022).
Overall, the debt burden is significantly higher than the medians of 59.2% and 52.7% for other firms in the ‘A’ and ‘BBB’ rating categories, respectively; we have since degraded to BBB by Fitch in 2020. Malaysia debt is close to 400% of revenue, around three times peer median. The ratings were weighed down by Malaysia’s high public debt, a low government revenue base and lingering political uncertainty.
Once downgraded, a national government would likely still be able to secure commercial loans, but at a higher rate – meaning more interest payments due every month.
B) Two years ago, the Federal debt and liabilities had already risen to RM$1.2569 trillion, or 87.3% of GDP, as at end-September 2020 — up 7.5% in the first nine months of the year compared with RM$1.1692 trillion as at end-2019. Indeed, country’s revenue is not rising as fast as the increase in operating expenditure that is more than 95% of revenue since 2008.
C) Indeed, out of the RM$332.1 billion allocated under Budget 2022, RM$233.5 billion or 70.3% have been designated as operating expenditure :
D) With the expenditure for subsidies and assistance projected to reach, by 2023, RM$77.7 billion which is more than double compared with the RM$31 billion given in the Budget 2022, the operational expenditure shall well exceed 90% of the national allocation for the year.
E) At a time of slow growth and surging inflation, where is the bottom 40% of population – the B40 who only get 16.4% of the national income share of wealth as in 2020 – but likely to deteriorate further because 20% of the M20 middle-income earners are now displaced to the B40 category. The wealth disparity gap had not closed much since two decades ago, but instead, more inequality has accentuated :
3. CONCLUSION
The undeniable fact as to why many bumiputera had not attained parity despite +60 years of neo-liberal-enforced economic development is the existence of a new class of compradore capitalist. According to the UNDP 1997 Human Development Report, and the 2004 United Nations Human Development Report, Malaysia has the highest income disparity between the rich and poor in Southeast Asia, greater than that of Philippines, Thailand, Singapore, Vietnam and Indonesia. From past performance, one can safely say that the future capital-led vehicle on an uneven route ahead is going to be calamity in crisis with government direct and statutory debt going up :
In addition, the economic downturn challenges emerging countries capacity to service their existing debts. Therefore, despite widespread concerns about the current escalation of public debt and its sustainability, we should not lose sight of the potential risk from possible surges of private debt, too.
The Malaysian Federal Government Debt and liabilities rose to RM$1.2569 trillion, or 87.3% of GDP, by end-September 2020 – up 7.5% in the first nine months of that year compared with RM$1.1692 trillion as at end-2019. Indeed, country’s revenue is not rising as fast as the increase in operating expenditure that is more than 95% of revenue since 2008. Assuming the economy is set to expand by 7.5% in nominal terms during 2021 to RM$1,521.3bil, Malaysia’s official debt to GDP and total debt to GDP is expected to rise to 64.1% and 77.9%, respectively.
[It is a fact that governments in high-income developing countries are often unable to issue long-term government securities at a sustainable rate of interest, yet they need to be able to pay off or roll over maturing short-term obligations.]
With the national household debt-to-Gross Domestic Product (GDP) ratio had already surged to a new peak of 93.3% as at December 2020 from its previous record high of 87.5% in June 2020, according to Bank Negara Malaysia (BNM), Malaysia’s debt-to-GDP ratio could stabilise at 65.5% in 2022, but the outlook for the country’s fiscal policy is highly conditional upon the growth recovery this year. Though current household debt to GDP is at 89% as at December 2021 as compared to 89.6% in June 2021, it remains on the higher end when compared to regional economies such as Singapore (69.7%); Indonesia (17.2%); Philippines (9.9%).
Moody’s assistant VP and analyst Nishad Majmudar said the outlook for Malaysia’s fiscal policy is highly conditional upon a good growth recovery. The political-economic scenario is not that as fortuitous as projected by the Finance Minister. Research For Social Advancement (Refsa) and the Malaysian Institute of Economic Research (MIER) agreed that any stimulus must be at least over RM$90 billion.
Always remembering that subsidies stimulus is a class war waged against the 99 per cent by the elite 1 per cent. Often the money extracted from the working class through inflation is transferred to the rich as subsidies and tax cuts to promote capital accumulation.
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Towards The Malaysia Narrative 