Najib’s toll freebie meant to entice Harapan supporters will only going to cost BN voters more

In Friday’s 2018 Budget speech, one of the big “goodies” that the Prime Minister announced was the abolishment of 4 tolls at Sg Rasau, Batu Tiga, Bukit Kayu Hitam and on the Eastern Dispersal Link (EDL).

On the surface, it looks like the Najib administration is hard pressed to replicate the Pakatan Harapan Alternative Budget which promised abolishing all highway tolls over time.

However, before Malaysians decides to rejoice, the first question that arises is how the government intends to compensate the existing toll concessionaires for their loss of revenue.

The Second Finance Minister, Datuk Johari Abdul Ghani very quickly burst the balloons by admitting that the government is looking at increasing the concession period for other tolls belonging to concessionaires as compensation.

This simply means that Malaysians will end paying toll fares for longer periods.

More specifically however, the tolls abolished were located in Selangor, a state which Dato’ Seri Najib Razak is only too eager to regain; and in Kedah as well as Johor, where BN is at the risk of losing with the twin threats of Tun Dr Mahathir Mohamad and Tan Sri Muhyiddin Yassin.

The 3 tolls at Sg Rasau, Batu Tiga and Bukit Kayu Hitam are owned by PLUS Malaysia Bhd. As a result, compensation for abolishing just three tolls will see the extension of its concession on any other highway under its management including the North-South Expressway, Seremban-Port Dickson Highway, Butterworth-Kulim Expressway, Malaysia-Singapore Second Link.

Very simply, the burden of the political move by Dato’ Seri Najib Razak to “free” the tolls in Selangor, Kedah and Johor will be “shared” by BN supporters in other parts of the country.  It appears to make a lot more sense to demonstrate support Pakatan Harapan because then, the BN government will actually show more love for you.

That however, isn’t the whole story.

The EDL is currently owned by MRCB, who just so happens is desperately looking to sell the loss-making highway.  MRCB also doesn’t own any other highway assets.

Hence the only way for the EDL toll to be abolished is for the Federal Government to fork out multi-billion ringgit compensation for MRCB.  Therefore, Dato’ Seri Najib Razak must come clean as to how much tax-payers must fork out to pay for the EDL and how the compensation is calculated.

The rakyat’s biggest fear is the Najib administration bailing out highway concessionaires, further proving that BN’s intrinsic economic policy is to “privatise profits and socialize losses”.

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The single biggest economic challenge which Dato’ Seri Najib Razak must address in the 2018 Budget is rising inflation

We will expect Dato’ Seri Najib Razak to wax lyrical about the higher that expected economic growth as reflected in the recent GDP figures. Bank Negara Malaysia (BNM) said given the strong growth in the first half of 2017 at 5.7%, the economy is expected to expand by more than 4.8% in 2017.

The question must be asked, if Malaysia’s economy is doing so well, why is it that ordinary Malaysians on the streets are feeling so pained?

The answer is obvious.  While the BN leaders sing praises of themselves over their supposed achievements, Malaysia’s inflation rate – which reflects the cost of living in the country, has been hitting record levels unseen since the global financial subprime crisis a decade ago.

Malaysia recorded an inflation of 4.3% year-on-year in September, the highest since March, mainly due to the rise in transportation costs and prices of food and non-alcoholic beverages.

According to the latest the consumer price index (CPI) released by the Statistics Department on Friday, transportation segment increased 15.8% on costlier fuel while the food and non-alcoholic drinks group rose 4.6%.

To put the above figures in context – despite GST’s implementation in April 2015 which resulted in a spike in inflation, the CPI had only increased to 2.1%.  In 2016, the inflation rate continued remained persistent at 2.1%.

Back then, the BN Ministers argued that the rising inflation was only a temporary “one-off”, and assured that the inflation rate will decline after a year or so after the implementation of the GST.  However, the CPI not only remained stubborn, it has accelerated to 4% year to date in 2017 demonstrating how wrong the BN administration have been.

In fact, Malaysia is currently suffering from negative real interest rates.  A survey of the local banks would show that they are only paying up to interests of 3.05% for 1-month fixed deposits.  If one keeps cash in a current or savings account as most Malaysians do, the gap would be even bigger.

This means our hard-earned savings kept in the banks are worth less tomorrow than they are worth today.

Hence not only Malaysians have gotten markedly poorer globally as a result of the massive depreciation of the ringgit over the past 4 years, our wealth is shrinking even in local ringgit terms.

Hence, the single biggest economic threat which must be addressed in the 2018 Budget to be announced on Friday this week is Malaysia’s inflation rate.  If Dato’ Seri Najib Razak decides to gloss over the issue by pulling the wool over the people’s eyes in an election year, the consequences for the people will be dire as Malaysians will be faced with even higher cost of living expenses in an environment of stagnant wages and rising unemployment, especially among youths.

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The Second Minister of Finance is living in a different planet for claiming 1MDB is not related in anyway to the Federal Government Budget

It is amazing how an UMNO MPs speaks when he is in or out of the Cabinet.

Dato’ Seri Johari Abdul Ghani, before he was appointed to the Cabinet in July last year, was one of the more vocal UMNO members of parliament who asked probing questions with regards to the unravelling RM50 billion 1MDB scandal.

Today, after being promoted to become the Second Finance Minister recently, he would tell Malaysians that 1MDB has nothing to do with the Federal Government budget.

In his explanation to Malaysiakini, he said the government's budget had nothing to do with 1MDB, which was managed by its board.

“A budget is a budget, 1MDB is 1MDB, they are two separate matters.  Budget is something that we present to the public to explain what the government is going to do - how to spend the money with the revenue. The budget has nothing to do with 1MDB. Please tell me which part is related,” he rationalised.

Instead, today we have former Cabinet Ministers, including the former Second Finance Minister, Datuk Ahmad Husni Hanadzlah asking probing questions about 1MDB and its very existence during his budget speech.

1MDB has everything to do with the Federal Government Budget not only because the global scandal has made Malaysia a renown kleptocracy and puts into question on why a tainted Dato’ Seri Najib Razak, who was found to have siphoned US$731 million into his personal bank account, is still the Finance and Prime Minister of Malaysia.

1MDB has everything to do directly with the Budget because Federal Government funds are being utilised to bail out 1MDB.

Most crucially, the Federal Government has given direct and indirect guarantees on RM5 billion and nearly US$8 billion, or an estimated combined RM32 billion worth of 1MDB’s borrowings and liabilities. If 1MDB fails to repay its loans and obligations, then the Finance Ministry will have to foot the bill.  RM32 billion will raise our targeted deficit of 3% of the GDP to 5.4%!

Any responsible Finance Minister will have the obligation to explain to the Malaysian tax-payers as to how the financial scandal will be resolved, especially since the much-hyped rationalisation exercsise which was supposed to by completed by June this year has collapsed.

The collapse was a result of the discovery that 1MDB has made as much as US$3.51 billion payment, according to information submitted by the 1MDB CEO, Arul Kanda to the Auditor-General, to a fraudulent Aabar Investment PJS Limited which was incorporated in the British Virgin Islands.

As a result, the parent of the “real” Aabar Investment PJS of Abu Dhabi, International Petroleum Investment Corporation (IPIC) has brought a suit against 1MDB and the Malaysian Government to the Arbitration Court in London. Of interest is the fact that the Ministry of Finance Incorporated has indemnified IPIC of up to US$4.8 billion of 1MDB’s obligations.

The failure of Dato’ Seri Najib Razak in addressing the 1MDB issue, especially in the Budget, is a clear attempt to hide the scandal and cover up for the guilty parties, including himself, who had misappropriated billions of dollars from the state-owned investment firm.

It might be useful to remind Dato Seri Johari Abdul Ghani that in the Budgets prior to 2013, Dato’ Seri Najib was happily gloating about 1MDB projects and achievements in his Budget speeches and including the proposed 1MDB investments in Bandar Malaysia and Tun Razak Exchange in the data compiled for the Non-Financial Public Corporations (NFPCs).  If it was relevant for the Budget then, why is it suddenly not relevant today?

The Second Finance Minister should be ashamed of himself for failing the people of Malaysia after he has been appointed to the Cabinet to get to the bottom of the single largest scandal ever suffered by Malaysia, and instead turned into a stooge to defend the kleptocrats of this nation.

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Treasury-General not telling the whole truth when dismissing Non-Financial Public Corporations as a time-bomb for Budget 2017

After the Prime Minister Dato’ Seri Najib Razak announced the Budget for 2017, I had issued a statement warning of a time-bomb hidden in the depths of the Economic Report, often unnoticed in budget presentations.

In 2013, the budget deficit was 3.8%.  The figure declined to 3.4% and 3.2% in 2014 and 2015.  For this year, the Government estimates it to be 3.1% and is forecasting 3.0% for 2017.

However, what is the above relatively benign figures mask is the increasing shift of expenditure from the official Federal Government budget to state-owned corporations.  Hence in reality, Government spending is higher than ever, increasing the risk to the economy with larger borrowings and contingent liabilities.

Some of these hidden off-budget spending are exposed in the obscure Non-Financial Public Corporations (NFPC) Financial Position (Table 6.13 p161 Economic Report 2016/7 – see below).

NFPCs includes 29 key government-linked companies including Indah Water Konsortium, KTM Bhd, Telekom Malaysia, Malaysia Airlines Bhd, Malaysia Airport Holdings, Petronas, Prasarana, Syarikat Perumahan Negara, Tenaga Nasional, MRT Co and the UEM Group.

The table clearly showed that the the NFPC deficit which was a modest RM10.6 billion deficit in 2013 leaped astronomically to RM52.3 billion in 2014 and further increased to RM56.9 billion in 2015.  The estimated deficit for 2016 is currently RM50.5 billion.

Effectively, Government-owned enterprises are having much larger deficits than the Federal Government itself.  The Federal Government budget deficits for 2015 was RM37.2 billion.  In 2016, it is estimated to hit RM38.7 billion while the Government forecast RM40.3 billion for 2017.
When this matter was raised to the Treasury-General Tan Sri Irwan Serigar on Monday, he dismissed my warning that the NFPC deficit is a ticking time-bomb waiting to explode.

He said “NFPCs are Government-Linked Companies which huge investments, and they have borrowings… Everybody needs to invest”.

He further added that “It is a contingent liability, but its not a time bomb kind of thing as they can repay their loans.  They are big entities with large resources.

“For example, Tenaga Nasional and Telekom Bhd, they are making profits. If they have borrowings for their projects, are you going to say it’s a time-bomb?” Tan Sri Irwan asked rhetorically.

The Treasury-General is being extremely disingenuous by citing only the big public listed companies as examples.  Out of the list of 29 companies, there are also other companies which are generally well-managed and would have no problems servicing their financial obligations, such as Axiata and Petronas.

However, there are many other entities among the 29 which are nothing other than vehicles for Government expenditure which more likely than not, will never generate sufficient income to service their loan obligations.

Why didn’t Tan Sri Irwan Serigar point out the fact that Prasarana’s RM13 billion of debt and mounting expenses have only increased and requires annual Government grants to keep the company afloat?

Why didn’t he point out that MRT Co is undertaking a RM22 billion investment for the current Sg Buloh – Kajang line and is planning another RM26 billion MRT II line which is financed almost entirely debt which are never likely to be repaid without future Government support?

Or the fact that among the 29 companies lie many critically ill GLCs which had required or will require government bailout, such as Keretapi Tanah Melayu (KTMB), Malaysia Airlines, Penerbangan Malaysia, Silterra Malaysia and Syarikat Perumahan Negara?

Worse, the list of 29 NFPCs isn’t even conclusive.  They leave out a number of other key Government-owned enterprises which heavily commit the federal government to meeting their obligations for many years to come.  This list will include PFI Sdn Bhd which took a RM30 billion loan from EPF to carry out general public infrastructure works, Pembinaan BLT with a RM10 billion debt to build police stations nationwise, and of course more recently controversial companies such as 1MDB and SRC International.

I call upon the Secretary-General to be stop creative accounting with the country’s national budget in order to manipulate the perception towards the Government’s financial position.  Such actions will only bring short term benefits but bring long-term pain, reminiscent of the Greek-type government spending which ultimately brought collapse to the country.

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The Economic Report 2016/7 exposes Dato’ Seri Najib Razak’s hidden budget time-bomb

Since the last general elections, Dato’ Seri Najib Razak has successfully managed the investment community’s perception of the “prudence” of the budget with declining budget deficits, albeit at a snail’s pace.

In 2013, the budget deficit was 3.8%.  The figure declined to 3.4% and 3.2% in 2014 and 2015.  For this year, the Government estimates it to be 3.1% and is forecasting 3.0% for 2017.

Despite the fact that Dato’ Seri Najib will never achieve his zero deficit target in 2020 at the current snail’s pace, credit should be given to the Finance and Prime Minister for the moderating deficit in the light of difficult economic conditions – that is if the deficit figures truly reflect government spending.

Even for a non-economist, you might raise an eyebrow as to whether deficit decline looked too “uniformly smooth” in a choppy global economy.  If you think that the numbers look too good to be true and have been manipulated, you are absolutely right.

In practically every budget in recent years, Dato’ Seri Najib Razak had announced multiple multi-billion ringgit projects such as the LRT Extension Project, the MRT I and II Projects and soon, the proposed High-Speed Rail and the RM55 billion East Coast Railway Link.

However, these spending were never reflected in the Government budget expenditure which showcased the “prudent” budget deficits.  Where did these massive spending disappear to?

You will find part of the answer in the Non-Financial Public Corporations (NFPC) Financial Position (Table 6.13 p161 Economic Report 2016/7 – see below).

NFPCs includes 29 key government-linked companies including Indah Water Konsortium, KTM Bhd, Telekom Malaysia, Malaysia Airlines Bhd, Malaysia Airport Holdings, Petronas, Prasarana, Syarikat Perumahan Negara, Tenaga Nasional, MRT Co and the UEM Group.

What is most alarming from the table is the NFPCs’ spending deficit.  In 2013, the NFPC deficit was a modest RM10.6 billion.  However, since then, the NFPC deficit leaped astronomically to RM52.3 billion in 2014 and further increased to RM56.9 billion in 2015.  The estimated deficit for 2016 is currently RM50.5 billion.

To lend context and perspective to the scale of these NFPC deficits, the Federal Government budget deficits for 2015 was RM37.2 billion.  In 2016, it is estimated to hit RM38.7 billion while the Government forecast RM40.3 billion for 2017.

In lay man’s terms, the Government has hidden the bulk of its excessive spending under the NFPCs to maintain a semblance of “moderate” budget deficit.  However, so much spending has now been shifted to these NFPCs, that the NFPC deficit has grown by leaps and bounds to now become even bigger than the Federal Government deficit!

To make matter worse, the 29 GLCs accounted in the NFPC does not include debt stricken 1Malaysia Development Bhd which is mired in more than RM20 billion of debt.

There is no question that the NFPC deficit is the biggest time-bomb to the Malaysian public finances.  We can already feel its ticking with the rapidly rising “Debt Service Charges” which the Government is forced to bear annually.  This is caused in no small part, to the Government being obligated to pay for interest and loans which the NFPCs are unable to fulfil.

The Federal Government Debt Service Charges have increased from RM20.3 billion in 2013 to a projected RM28.9 billion in 2017.  The increase will only accelerate and snowball as NFPC financial obligations arising from the massive deficits are realised in the years to come.

By the time the time-bomb explodes, the 2017 Budget which is already depressing, will feel like a Hawaiian vacation on hindsight.

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Budget 2017 proved that the Government is not only running out of cash, but the situation will only deteriorate further, making 2017 possibly one of the worst years for ordinary Malaysians

Federal Government failed to meet 2016 revenue targets

Last year, Dato’ Seri Najib Razak announced in his budget that the Government expected to collect RM225.7 billion of revenue for 2016. However, the 2016 revenue has now been revised to RM212.6 billion based on the latest estimates.  That represents a very substantial 5.8% or RM13.1 billion shortfall for 2016.

To put things into perspective, and to highlight the severity of situation, more often than not in the past, the Government will collect more than they projected. 

The shortfall has in turn caused lower than projected operating and development expenditure.  The Government now estimates 2016 operating expenditure to drop from RM215.2 billion to RM207.1 billion, while development expenditure will drop from RM50 billion to only RM45 billion.

For example, this is the reason why we are seeing a substantial shortfall in health expenditure, resulting in shortages of reagents for conducting critical blood tests as well as increase in cost of medication for the man on the street.

The ability of the Federal Government to allocate the already limited operating expenditure budget is further constricted by Emoluments and Debt Servicing

In fact, it will only get worse in 2017 as the sins of the past catch up with the Government of the day.

The increasing size of the civil service has ensured that the “Emolument” payments for 2016 has increased by RM3.8 billion to RM73.9 billion despite the RM8 billion decline in operating expenses.  For 2017, the Government has further projected that emoluments will increase further by at least RM3.6 billion.  In the meantime, pension contributions, or “Retirement Charges” will also increase substantially from RM19.0 billion in 2016 to RM21.8 billion in 2017.

In addition, the annual “Debt Service Charges” – the instalments and repayments the Government has to pay for loans taken in the past – has increased significantly.  For 2016, it is estimated at RM26.6 billion or a RM2.36 billion hike from 2015.  For the next year in 2017, the amount would further increase to RM28.9 billion.  This is as a result of the Government’s reckless ramping up of Federal Government debt over the past decade on the back of high oil prices.

The twin increases in emoluments & retirement charges and debt service charges in the context of constricted revenue and operating expenditure would only mean less funds for other crucial expenses.

“Subsidies and social assistance” has already been reduced from RM39.7 billion in 2014 to RM27.3 billion (2015) to an estimated RM24.6 billion (2016).  It will be further reduced to RM22.4 billion in 2017.

There will also be less money for medicine supplies, housing, scholarships and other forms of educational support.

Federal Government is overly optimistic on its 2017 revenue projections

Finally, the only reason the Government was still able to project a “moderate” 3% budget deficit for 2017 was by giving an optimistic projection in its tax revenues.  Despite a significant drop in the estimated Petroleum Income Tax (PITA) from RM11.6 billion in 2015 to RM8.5 billion in 2016, the Government is assuming higher oil prices and demand for 2017 to collect RM10.6 billion.

The Government also assumes an increase in Corporate Income Tax (CITA) despite no corresponding assumption in a higher economic growth rate. CITA actually declined marginally in 2016 to RM63.2 billion from RM63.7 billion in 2015.  However in 2017, the Government has inextricably projected that it would receive RM69.2 billion.

Similarly, despite a declining trend of Goods and Services Tax (GST) collection in the recent quarters, the Government is still projecting an increase in collections of GST from RM38.5 billion in 2016 to RM40 billion in 2017.

All the above goes to prove that the Government is running out of cash very quickly and is struggling to balance its revenue and expenses.  The Government’s excesses of the past – including increasing the civil service hires to reduce graduate unemployment, excessive borrowings to finance inefficiency, corruption and wastages have severely constricted the Government’s ability to allocate expenditure today.  

Hence when the overly optimistic projections in government revenue collection fail to materialise, we can expect 2017 to be a very painful year for ordinary Malaysians. 

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Budget 2016 burdens the rakyat further; meanwhile, Najib ignores the biggest elephant in the room

As the Malaysian economy gets hit by a slowing global economic environment, declining commodity prices, rising inflation and a plunging ringgit, the Budget for 2016 just announced by the Prime Minister is long on grandiloquence and short on substance.

While the Prime Minister praises his Government for its far-sightedness to introduce the Goods & Services Tax (GST) as the income from the new tax will make up for the loss of revenue from the oil and gas sector.

The reality is Malaysians, particular the middle and lower income population are now burdened with coughing up RM39 billion of GST relative to the loss of RM17.5 billion from the Petroleum Income Tax.

In comparison, the Sales and Services Tax collected in 2014 amounted to only RM17 billion.  This means that Malaysians have to suffer an increase in taxes by a whopping RM22 billion.

While the taxes paid by the man-on-the-street have been increased drastically, the Federal Government has failed to increase its prudence on expenditure.  As an example, the budgeted expenditure for ‘Supplies and Services’ has been maintained at RM36.3 billion for 2016 when it was only RM20.8 billion in 2010.  Why has this provision increased by 75.4% in just 5-6 years?

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Cheaper Cars: Fantasy or Reality?

BN, Pakatan spar over car prices
Nigel Aw
11:55AM Oct 11, 2012

The issue of cheaper cars heated up yesterday as the topic dominated a budget forum between Barisan Nasional's Kota Belud MP Abdul Rahman Dahlan and Pakatan Rakyat's Petaling Jaya Utara MP Tony Pua.

Pua (left), who began by comparing Pakatan's shadow budget with the federal budget, pointed out that the former focussed on increasing disposable income rather than providing one-off assistance.

"Most households have a median income of between RM1,500 to RM2,500 only. We looked at what is their largest monthly expenses and it was paying for car loan. Just a Myvi may cost RM600 to RM700 a month.

"If we reduce excise tax by 20 percent - we start with 20 percent first or the second-hand car industry may collapse - households can save RM70 to RM100 a month, that's a saving of RM1,000 per year," he told the forum in Shah Alam last night.

Adding on, Pua said the second highest expense was for housing loan, and on top of building more affordable housing, Pakatan will go a step further than BN by also breaking up the monopoly in the cement and steel sectors to make building materials cheaper.

'Contradiction of the highest degree'

However, Abdul Rahman accused Pakatan of taking on the issue in "silo" by failing to consider the myriad of issues that would also be impacted from the reduction of car prices.

"If you close a hole here then another hole will open up there. For example, you have not explained how you are going to solve the petrol subsidy problem when cars flood Klang Valley (and consume more petrol).

“I am also not confident that reducing excise duty will help reduce car prices... If excise duty goes down, cars like Honda may still maintain their prices because there is demand in Malaysia," he said.

He added that even though car prices in Malaysia were more costly, other related expenses such as petrol, insurance and road tax were still among the relatively cheap.

Abdul Rahman (right) also blasted Pakatan for wanting to make Kuala Lumpur a liveable city but concurrently would allow large number of vehicles to flood the city with cheaper cars.

"This is a contradiction of the highest degree," he said.

Responding to this, Pua pointed out that the car to population ratio had already exceeded one to one.

"Even if we make cars cheaper, there would be no marked increase because a person can only drive one car at a time, no one can drive two at a time and the maximum number of cars are already on the road," he said.

Improve public transportation first

He added that Pakatan planned to increase the number of buses in Klang Valley by the thousands to compliment the MRT system that is being constructed.

Abdul Rahman rebutted the argument that car numbers would not significantly increase, stating that this was merely an assumption.

"There are many people using buses and LRT, this means many people in Klang Valley still do not have a vehicle," he said.

To this, Pua replied that the public would still opt for public transport even if they have their own vehicles to get to work and a car was mostly for family leisure.

"It is not that anyone who starts work wants to buy a car, some people buy a car because they have no choice, or else they cannot go to work," he said.

He added that only after people have a real choice between public and private transport, after the former is adequately improved, considerations could be made to slash petrol subsidies.

Another panellist at the forum was Institute for Democracy and Economic Affairs (Ideas) chief executive officer Wan Saiful Wan Jan and the session was moderated by Universiti Islam Antarabangsa (UIA) lecturer Maszlee Malik.

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When Will Hishamuddin Understand Crime Isn't Perception?

Why is the Home Minister obsessed with crime perception when it should be crime prevention that we should be concerned with?

I almost could not believe my eyes when I read the news reports that quoted Datuk Seri Hishamuddin Hussein as saying that “the government was switching its focus to managing public perception in the second phase of its National Key Result Area (NKRA) to lower growing concern.”

I had to watch a news report on TV to hear it with my own ears to confirm that he actually said the following.

“The issue now is not the index. That we are quite confident. The issue is not from the point of targeting street crime but the goal post has changed according to current demands. This will all be discussed and announced in the second phase of our NKRA,” Hishammuddin told a news conference after closing a special meeting at the Royal Malaysian Police College.

After the recent controversy over the “index crime” and “non-index crime” where it should clearly shown that crime statistics have been manipulated to show a drastic decline of “index crime” by re-classifying crime incidents to “non-index crimes” which are not published.  It was only via a response by the Police to a whistleblower accusation that we found out that while “index crime” has declined 24.7% from 2007 to 2011, a very “commendable” achievement, “non-index crime” has on the other hand increased by a whopping 68.7% over the same period.

The figures provides the strongest evidence yet of statistical manipulation on the part of the authorities to reflect a much better performance measure than the reality facing the man-on-the-street.

Hence, the Home Minister is not wrong to claim that the issue “is not the index”.  Of course it is not, it has been manipulated to show dramatic improvement in safety and security.  The issue is with the manipulated and opaque “non-index” crime which hides the true situation on the ground.

If crime is indeed no longer an issue Malaysians should be concerned about, then surely both “index crime” and “non-index crime”, a relatively meaningly distinction should have declined somewhat proportionately over the same period.

What is shocking and unbelievable is the fact that the Home Ministry has allocated RM272 million specifically to improve the “crime perception index” under the National Key Result Area (NKRA).

I must admit that I am at a complete loss as to how best to knock it into the Minister’s thick skull that if crime has indeed improved significantly, and the risk of crime has been reduced substantially, the perception of crime will be automatically improved!  The perception on the risk of crime is a derivative of the incidence and likelihood of being an actual victim of crime.

No matter how much money the Government decides to throw into improving the “perception” of crime, whether through advertisements or a sales and marketing pitch by perception consultants or other brainwashing attempts, the outcome will not change unless actual crime declines, and not some manipulated statistics.

Crime and safety is a hugely important matter for ordinary Malaysians, and they deserve much better policy makers to ensure that crime rates will be slashed.  A doctor will not cure cancer by prescribing pain-killers for the pain but by dealing with the misbehaving cells.  Datuk Seri Hishamuddin Hussein should focus the ministry’s effort on the causes and prevention of crime, and not only the symtoms, that is the people’s perception.

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Budget 2013: KR1M Gets RM386 Million!

Why is the Federal Government helping Mydin make astronomical profit to set up 57 Kedai Rakyat 1Malaysia (KR1M) in Sabah and Sarawak with RM386 million?

The Prime Minister proudly announced that the Federal Government will allocate RM386 million to set up 57 Kedai Rakyat 1Malaysia (KR1M) next year to “ensure the prices of essential goods in Sabah and Sarawak as well as in Labuan are sold at lower prices”.

We are in complete support of any measure by the Government to reduce the prices of goods and services in East Malaysia, especially over the longer term to ease the burden of Malaysians living in these states.

However, the approach taken by Datuk Seri Najib Razak is clearly designed to profit only Mydin Mohamed Holdings Bhd as the allocation goes direct to the company to set up these stores.

Based on 57 proposed new outlets in Sabah and Sarawak with a budget of RM386 million, each retail shop will average a whopping cost of RM6.77 million!

This is manifold higher than what was announced in the 2012 Budget where RM40 million was allocated to subsidise Mydin to set up 85 stores, where each store will average RM471,000.  Why is there a difference of RM6.3 million for each store set up between 2012 and 2013, especially since the Government claims that the rate of inflation is only 1.9%?

If the amount of money allocated is expected to also “bear the cost of delivering products from Peninsular Malaysia to Sabah, Sarawak and Labuan including the interior areas” then why is it that this benefit will not be extended to all other shops in Sabah and Sarawak offering these “basic necessities”?

In fact, since the RM386 million grant or subsidy is given only to Mydin, the Government is in effect killing off all of Mydin’s competitors – from big hypermarkets to small mom-and-pop shops.  Mydin will have the monopolistic right to sell certain products at substantially cheaper prices than its competitors due to the exclusive RM386 million from the Federal Government.

What is worse is that because there is no transparency in the subsidies provided to Mydin, and no “competition” in the exercise. Malaysians will not be able to ascertain if we are getting our value for money from Mydin, or whether a significant chunk of this subsidy will be siphoned by the company, instead of being passed on to consumers.

We call upon the Government to make available the RM386 million all small retail outlets already in existence throughout Sabah and Sarawak to ensure that the maximum number of retailers and consumers will benefit from the programme to sell basic necessities at lower prices.  There is absolutely no need for the Government to sponsor its crony to open up new shops in these areas to compete unfairly and kill of local shop-owners.

We are in fact rather disgusted by the fact that even in a programme ostensibly designed to lower the cost of living of the poor, the Barisan Nasional Government chosen a mechanism to profit its cronies at the expense of the man-on-the-street.

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Budget 2013: 2012 Deficit Would Have Been 6.7%

Budget deficit would have been 6.7%; 2015 2.5% deficit target a lost cause

Based on the Economic Report, the Government was able to keep its deficit below 5% at 4.7% for 2012 only because of an unbudgeted increase in revenue by RM21 billion for the year.  If not for the above, based on the Government’s expenditure in 2012, our deficit would have increased to 6.7%.

The Government has announced its plan in the 2013 budget to keep the deficit at 4.0%.  However, it has become clear that the Government’s original target as late as 2011 to reduce our deficit to 2.5% by 2015 is no longer achievable.  The steep decline of growth in the government’s revenue will make the task seemingly impossible.

No political will

The budget demonstrates no political will on the part of the Federal Government to make the necessary structural changes to the way we manage our budget.  We see a decline in the proportion of funds spent on development expenditure. We also do not see a serious effort to tackle federal government debt, both “official” and “hidden”.

The 2013 Budget reads like a repeat of prior year budgets, using the same formula without taking into consideration the changing circumstances and increasing economic challenges we face today.

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Budget 2013: Federal Government Debt RM502 billion

Our Federal Government debt has increased rapidly from RM242 billion in 2004 to RM363 billion in 2009 and RM456 billion in 2011.  For 2012, it is projected that our debt will hit RM502 billion. That represents a marked 107.4% increase in debt over the past 8 years.

More worryingly, the debts have increased our structural debt service commitments significantly.   The rate at which our debt servicing commitments are growing will severely constrict our future operational and development expenditure.  This together with a much slower rate of growth in government revenue as shown in the budget for 2013 will have a major impact to our economy, given its current heavy reliance on public spending and investments.

From 2003 to 2008, our debt servicing obligations increased by 21.9% from RM10.5 billion to RM12.8 billion.  However, in the next 5 years from 2008 to 2013, the annual commitment has increased by a whopping 73.4%!

The official federal government debt is also expected to increase as a proportion of our GDP from 51.8% to 53.7%, staying marginally below the 55% legal federal government debt limit.  However, even the 53.7% is an artificial figure as it fails to take into consideration the Government’s contingent liabilities and hidden debts which amounted to RM117 billion as at Dec 2011.

What is frightening is, the Government’s contingent liability is expected to increase exponentially in 2013 due to the expenditure for the RM53 billion MRT project as well as other mega-infrastructure projects.  These debt driven expenses are completely off-balance sheet or not considered part of the official Federal Government debt, despite it ultimately being Federal Government funded.

In Europe, Spain is facing major financial crisis which requires hundreds of billions of Euro bailout, has an “official” debt to GDP ratio of 68.5%.  But due to various contingent liability and bank bailouts, the “real” ratio which is significantly higher has caused a near collapse of the economy, in a crisis that is still evolving.

We must not allow ourselves to get entangled in a similar crisis.

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Budget 2013: Slowing Revenues, Declining Development Expenditure

Budget 2013 signals the end of an era of record budgets with a slow down in Government revenues.

Over the past few years, the Government has been able to increase its budget tremendously to achieve record expenditures annually. This has allowed the Government to prop up the economy as we faced challenges in attracting private investments, as well as a drop in our trade contributions.

However, the Budget has projected an increase of only 0.7% (2012: 11.8%; 2011: 16.1%) in projected revenues from RM207.2 billion to RM208.6 billion in 2013.  This is the slowest projected increase in the tabled budget since 1999, barring the global financial crisis in 2009.

Consequently the Government is forced to table a smaller budget than the prior year. The proposed operating expenditure has been reduced by 0.3% from RM202.6 billion to RM201.9 billion, while the development expenditure is also reduced from RM46.9 billion to RM46.7 billion or 0.4%.

The marked decline in revenue growth will have a very significant impact on the Government’s ability to impact growth in the Malaysian economy through fiscal means.  The fact that we have not been able to reduce our budget deficit below 4% over the past few years reflects the years of wasted opportunities, where we have failed to curb our expenditure through reduced wastages, abuses and corruption.

Consistent Decline in Development Expenditure

Of concern is also how the Government has consistently reduced its emphasis on Development Expenditure which will create greater multiplier effects on our economy.

The proportion of the budget expenditure dedicated to Development Expenditure has reduced from 31.5% in 2003 to 27.1% in 2007 to 21.3% in 2012.  The worrying trend continues in 2013 where the proportion is reduced further to only 18.6%, a record low in Malaysia’s history.

This represents lower investment by the Government with its current revenue, which will result only in lower returns to the economy in future years.

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2012 Supplementary Budget Speech Part 4: 1MDB - Tanjong Power

1MDB – Tanjong Power

Sebenarnya saya tak berapa faham apakah matlamat penubuhan syarikat 1MDB.  Laman web 1MDB berkata bahawa ia merupakan “strategic enabler for new ideas and new sources of growth, 1MDB leads in market-driven initiatives to help transform Malaysia into a thriving economy.”

Tapi yang kita lihat, 1MDB telah menjadi Ah-Long kepada syarikat yang diragui, pemaju hartanah kepada PUKL dan KLIFD yang tidak merupakan industry baru.

Tambahan lagi, 1MDB telah menandatangani perjanjian untuk membeli Tanjung Energy Holdings daripada Tan Sri Ananda Krishnan dengan harga RM8.5 bilion.

Malaysia sekarang mempunyai lebih daripada 10 penjanakuasa bebas (IPPs), adakah 1MDB yang tidak mempunyai pengalaman langsung dalam industri penjanaan kuasa akan menambah nilai kepada industri tersebut?  Adakah industri IPP ini merupakan “new idea” atau “new source of growth” yang dihebohkan sebagai visi 1MDB?

Kalau tidak, kenapa beli dari Ananda Krishnan? Adakah pembangunan PUKL dengan KLIFD yang belum benar-benar bermulapun, tidak mempunyai cabaran yang mencukupi untuk pihak pengurusan 1MDB?

Oleh kerana pengambil-alihan yang baru ini, 1MDB akan terpaksa mendapatkan pinjaman tambahan lagi sekurang-kurangnya RM9 bilion untuk membiayai kos IPP.

Saya berasa amat bimbang kerana 1MDB ini macam syarikat “neither here nor there”.  Ianya langsung tidak mempunyai modal tersendiri dan bergantung sepenuhnya dengan pinjaman yang dijamin oleh kerajaan.

Jika benar ada berlaku penyelewengan dalam transaksi-transaksi besar 1MDB, dan ianya tidak dihentikan dan dikawal dari awal lagi, 1MDB mungkin akan menjadi syarikat yang memerlukan rekod bailout daripada kerajaan persekutuan satu hari nanti.

Biar Menteri menjawab dan menindas perbahasan saya dengan angka-angka terperinci dan fakta-fakta yang tidak dapat dipersoalkan.  Tapi saya harap Menteri tidak akan menjawab hanya dengan sangkaan dan retorik “keyakinan kepada kerajaan Barisan Nasional” kerana ia tidak akan diterima baik dan ia akan membuktikan bahawa memang ada udang di sebalik batu.

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2012 Supplementary Budget Speech Part 3: 1MDB "Profit"

1MDB-Profit

Syarikat 1MDB melaporkan keuntungan yang bertambah berbanding dengan tahun sebelumnya dalam penyata kewangannya.  1MDB mencapai keuntungan sebanyak RM544 juta pada hujung tahun Mac 2011 berbanding dengan RM424 juta tahun lalu.

Kontroversi keuntungan RM424 tahun 2010 adalah atas sebab ia merupakan “paper gains” yang berasal daripada penukaran pegangan saham kepada pinjaman kepada syarikat usahasama Petrosaudi International.  Keuntungan ini langsung tidak bermakna jika pinjaman besar yang dibuat tidak dapat dipulangkan.

Macamana dengan keuntungan 2011 pula?  Bila kami meneliti penyata kewangan 1MDB, keuntungan dicapai dengan penilaian semula hartanah 1MDB yang meningkat sebanyak RM827 juta.  Maksudnya, tanpa mengambil-kira penilaian semula hartanah, 1MDB sebenarnya mengalami kerugian sebanyak RM283 juta!

Lebih menarik lagi, dalam balance sheet, nilai pelaburan hartanah adalah RM1.02 bilion.  Maksudnya nilai hartanah 1MDB telah meningkat sebanyak 426% dalam jangkamasa 1 tahun sahaja.  Adakah aset ini merupakan tanah di Jalan Cochrane yang telah dijual kepada 1MDB dengan harga yang cukup murah untuk pembinaan Kuala Lumpur International Financial District (KLIFD)?

Jika benar, ini merupakan “creative accounting of the highest order”. Kerajaan jual tanah kepada 1MDB dengan harga cukup murah. Selepas itu, tanah tersebut dinilai semula untuk memberikan gambaran bahawa 1MDB telah membawa keuntungan lumayan kepada rakyat Malaysia!

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2012 Supplementary Budget Speech Part 2: 1MDB - Bandar Malaysia

1MDB-Sungai Besi

Masalahnya, lubang kewangan 1MDB semakin lama, menjadi semakin besar.  Wang diperlukan untuk “cover up” lubang tersebut daripada skandal Petrosaudi.

Selain daripada pinjaman RM5 bilion yang dibuat pada May 2009, 1MDB telah pada tahun lalu mengambil pinjaman tambahan sebanyak RM2.3 bilion.  Pinjaman tambahan ini merupakan pinjaman jangkamasa singkat dan pembayaran balik perlu dibuat tahun depan.
Nasib baik ada projek penyelamat – projek Bandar Malaysia sebesar 495 ekar, iaitu tanah Lapangan Terbang Sungai Besi Tentera Udara Diraja Malaysia.

Tanah tersebut dijual kepada 1MDB oleh kerajaan Malaysia dengan harga yang cukup murah, hanya RM74.20 setiap kaki per segi berjumlah RM1.6 bilion.  Tanah ini merupakan tanah “super-prime” kerana lokasinya dan infrastruktur yang sedia ada yang tiada bandingan.

Untuk perbandingan, tanah Bayan Mutiara di Pulau Pinang, dimana 40% merupakan laut atau tanah paya yang perlu ditambak telah dijual secara tender terbuka dengan harga RM240 kaki per segi.  Secara logiknya, tanah di Sungai Besi adalah jauh lebih mahal daripada tanah Bayan Mutiara, akan tetapi, tanah Sungai Besi telah dijual kepada 1MDB dengan nilai 31% nilai tanah Bayan Mutiara.

Cara suntikan dana ke dalam 1MDB adalah amat inovatif.  Oleh kerana TUDM perlu dipindahkan daripada kawasan Sungai Besi, 1MDB telah ditugaskan untuk menempat semula Pengkalan Udara Kuala Lumpur ke beberapa tempat baru termasuk Sendayan, Subang, Kuantan, Butterworth dan Gong Kedak.

Yang “shocking” ialah, kos penempatan semula adalah RM2.7 bilion.  Ini bermakna kos penempatan semula adalah RM1.1 bilion lebih mahal daripada tanah “super-prime” yang dijual kepada 1MDB.  Transaksi ini langsung tidak masuk akal. Kalau nilai kawasan penempatan semula begitu mahal, kenapa PUKL perlu dipindahkan? Buatlah pembangunan di kawasan penempatan semula dan bukan di Sungai Besi.

Atas sebab penilaian yang “totally don’t make sense” di atas, 1MDB tidak diperlukan untuk membayar 1 sen pun daripada pengambil-alihan tanah Sungai Besi yang dibeli dengan RM1.6 bilion.  Sebaliknya, kerajaan perlu membayar 1MDB sebanyak RM1.1 bilion untuk membuat penempatan semula PUKL.

Ini merupakan cara yang cukup licik untuk memberikan suntikan yang kepada 1MDB yang kini tidak mempunyai yang mencukupi.

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2012 Supplementary Budget Speech Part 1: 1MDB-PetroSaudi

1MDB-PetroSaudi

1Malaysia Development Bhd (1MDB) merupakan sebuah syarikat yang dimiliki kerajaan sepenuhnya dan segala pinjaman yang diperolehi oleh 1MDB ini adalah dijamin oleh kerajaan persekutuan.

Dengan itu, segala perbelanjaan 1MDB sepatutnya tidak berbeza dengan perbelanjaan kerajaan secara langsung.  Akan tetapi, 1MDB diberikan kuasa mutlak untuk membuat pelbagai perbelanjaan atau pelaburan tanpa pantauan secara langsung daripada parlimen.
Ketua Pembangkang pernah dua kali membangkit kan isu “pelaburan” 1MDB ke dalam syarikat usahasama bersama Petrosaudi International Limited pada tahun lalu.  Akan tetapi tiap kali beliau tidak mendapat jawapan yang menyeluruh atau yang memberikan penjelasan terperinci mengenai pelaburan tersebut.

Saya ingin membangkitkan isu ini sekali lagi dengan maklutmat-maklumat baru kerana ini isu besar dan serious, dan memerlukan jawapan yang munasabah daripada kerajaan.

Pelaburan ini merupakan pelaburan wang rakyat yang cukup besar – US$1 bilion pada Sep 2009. Pelaburan ini adalah sebagai modal untuk pegangan saham 40% dalam syarikat usahasama 1MDB-Petrosaudi.

Walaupun PetroSaudi sepatutnya menyuntik US$1.5 bilion untuk memenuhi syarat ekuiti 60%, Petrosaudi dibenarkan menyuntik sebuah asset medan minyak tengah Laut Caspian yang “berpotensi”.  Maksudnya, yang disuntik bukannya wang tunai seperti pelaburan 1MDB.  Yang disuntik adalah satu kawasan laut yang mungkin ada minyak.

Yang anehnya, 1MDB membuat keputusan untuk melupuskan pegangan saham dalam syarikat usahasama tersebut dengan menukar ekuiti kepada pinjaman Nota Murabaha yang bernilai US$1.2 bilion.  Nota Murabaha ini bukannya pinjaman biasa di mana pinjaman dibayar balik secara beransur.  Untuk jangkamasa 11 tahun, Petrosaudi hanya perlu bayar balik nilai kupon sahaja sebanyak 8.67%, sebelum kesemua hutang dibayar dengan sepenuhnya selepas 11 tahun.

Adakah matlamat 1MDB ini untuk menjadi Ah-Long besar antarabangsa?  Kenapa kalau tak ingin lagi melabur dalam syarikat usahasama, kita tak minta wang dipulangkan kepada kita?

Siapa syarikat Petrosaudi ini sebenarnya?  Mengikut laman web Petrosaudi International – ia merupakan sebuah syarikat yang baru ditubuhkan pada tahun 2005, tak sampai 4 tahun pun apabila 1MDB membuat pelaburan sebanyak US$1 bilion.

Siapa yang memiliki syarikat Petrosaudi ini? Mengikut laman web Petrosaudi International diasaskan oleh Tarek Essam Ahmad Obaid bersama beberapa pelabur persendirian yang tidak dinamakan.

Siapa ini Tarek Essam Ahmad Obaid?  Yang pelik, jika kita buat carian Google – namanya hanya muncul selepas perjanjian antara 1MDB dan Petrosaudi dibuat.  Langsung tidak ada berita mengenai Sheikh Tarek Essam ini di mana-mana pun yang boleh memberikan latar belakang beliau dengan lebih jelas.

Dewan ini juga ingin mengetahui apakah perkembangan explorasi di medan minyak atas laut yang disuntik sebagai ekuiti kepada syarikat usahasama?  Ada dapat gali minyak?  Ataupun kesemuanya masih air laut sahaja?

Adakah syarikat Petrosaudi ini, yang ditubuhkan di kepulauan Seycelles, benar-benar sebuah syarikat yang “genuine”?  Sampai hari ini, tiada siapa pun dari kerajaan atau syarikat 1MDB – di media massa atau semasa dijemput oleh jawatankuasa kira-kira wang Negara (PAC) – memberikan keterangan mengenai nilai syarikat Petrosaudi ini.

Rakyat Malaysia tak tahu sama ada 1MDB telah pinjam US$1.2 bilion kepada sebuah syarikat kosong ataupun sebuah syarikat yang benar-benar bernilai berbilion-bilion US dolar.

Perkara ini amat penting kerana rakyat perlu diberikan keyakinan bahawa wang yang dipinjam kepada Petrosaudi akan dilabur dengan beramanah dan tidak akan hilang disonglap oleh pihak-pihak yang tertentu.  Kami percaya pihak 1MDB tentu ada rekod laporan kewangan syarikat Petrosaudi yang menyatakan aset-liabiliti dan juga untung-rugi syarikat tersebut.

Apa yang membimbangkan ialah pinjaman tersebut tidak dibuat dengan sebarang “ratings” oleh agensi penilaian tempatan atau antarabangsa.  Pinjaman bon atau sukuk yang dibuat dalam negeri pun memerlukan sokongan laporan dari Ratings Agency Malaysia (RAM) atau Malaysia Ratings Corporation (MARC).  Tetapi pinjaman sebanyak US$1.2 bilion yang dibuat dengan wang yang dijamin oleh rakyat Malaysia, langsung tidak memerlukan sebarang akreditasi daripada mana-mana pihak.

Keengganan kerajaan dan 1MDB untuk memberikan penjelasan yang menyeluruh membangkitkan rasa keraguan bahawan ini merupakan satu scam yang cukup besar dalam almari kerajaan Barisan Nasional.  Apakah yang diselindungi? Kalau Petrosaudi benar-benar hebat, bagi tahulah Dewan ini betapa hebat syarikat tersebut dengan angka-angka kunci kira-kira dan penyata kewangan.  Tapi jika diam membisu, ini bermaksud ada yang tidak mengena dan apa yang disyaki oleh pihak Pakatan Rakyat ini adalah berasas.

Apa yang lebih memeranjatkan adalah 1MDB bukan sahaja menukarkan equity kepada pinjaman pada  31 Mac 2010, 1MDB telah memberikan pinjaman tambahan sebanyak US$500 juta (atau RM1.6 bilion) kepada PetroSaudi International.

Kesemua maklumat ini terkandung dalam Penyata Kewangan 1MDB untuk tahun berakhiri Mac 2011 yang diperolehi daripada Suruhanjaya Syarikat Malaysia (SSM). Penyata terkini ini dikemukakan kepada SSM pada October 2011.

Dan bila saya baca sampai hujung penyata, saya terkejut sekali lagi dalam seksyen “Subsequent events”, di mana dilaporkan bahawa 1MDB telah memberikan pinjaman tambahan sebanyak US$200 juta kepada anak syarikat Petrosaudi pada Mei 2011.

Maksudnya, walaupun anak syarikat Petrosaudi perlu membayar kadar kupon sebanyak US$105 juta setiap tahun kepada 1MDB, pinjaman tambahan yang dibuat adalah melebihi pulangan yang diterima.  Ini sudah nak jadi skim Ponzi haram.

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BN fiddles with Budget Deficit

When the 2012 Budget was presented in October 2011, the Prime Minister Dato’ Seri Najib Razak had announced that the Federal Government will reduce the budget deficit from 5.4% in 2011 to 4.7% in 2012.  The figure is also reduced from a deficit of 5.6% in 2010 and 7.4% in 2009.

On the surface the reduction in deficit has been commendable despite it being still significantly higher than our medium term target of less than 3%.

However the Barisan Nasional (BN) Federal Government budget deficit figure is a complete sham, or in layman’s term, “legalized accounting fraud”.  Under pressure to reduce the Government’s deficit to appease international investors and to demonstrate financial prudence, Najib’s administration has chosen to deploy creative means to finance the Government’s financial extravagance.

Taking the 2012 Budget as an example, if one were to parse through the hundreds of pages of expenditure allocation, he or she will be shocked that some of the big ticket expense items promised by the Federal Government is completely “unbudgeted” for.

Malaysia’s single largest infrastructure project, the Klang Valley MRT which works have commenced and is expected to cost a record RM53 billion is not provided for in the 2012 Budget.  The first MRT line, the Sungai Buloh – Kajang line alone is expected to cost RM20 billion, and billions of ringgit of contracts have already been awarded.

The expenditure is not included in the budget because the project is expected to be funded from loans raised by Dana Infra, a Ministry of Finance (MoF) owned special purpose vehicle (SPV) and guaranteed by the Federal Government.

Similarly, Syarikat Prasarana Bhd, another wholly-owned MoF company has already awarded RM6.5 billion of contracts for the LRT Line Extension Projects since the end of last year with more expected to be awarded this year, and yet, none of these expenditure items were provided for in the 2012 Budget.

Furthermore, another wholly-owned subsidiary of the Government, Pembinaan BLT (PBLT) has been given RM10 billion federal government guaranteed financing to build 74 police stations which will subsequently be leased back to the Government.  Many of these stations will be built this year and next and yet again, none of these expenditure items are found in the 2011 or 2012 Budgets.

Because all these large ticket items have all been excluded from the Government’s budget, Najib is able to claim false credit that his government has been prudent in managing expenditure and has been able to “reduce” its deficit from a high of 7.4% in 2009 to the projected 4.7% in 2012.

The only reason why the government has been able to “reduce” the deficit is because Government expenditure has been “externalized” to wholly or majority-owned Government agencies which is in turn not reflected in Malaysia’s annual budget.  As a result, this form of “off-balance sheet” financing mechanism has been used with increasing size and frequency in recent years causing Malaysia’s contingent liability or funds guaranteed by the Government to increase from RM84.3 billion in 2009 to RM96.9 billion in 2010.  This figure would have increased significantly beyond RM100 billion in 2011.

The Government is under pressure to spend more in part to support many of Barisan Nasional crony businesses who are not able to secure projects competitively, as well as to increase public investment to cope with the decline in private investment in the country.

If all of the “off-balance sheet” expenditures cited above and more which has not been accounted for, are taken into consideration in the Federal Budget, then the real budget deficit for 2012 will easily be in excess of 7%.  This creative manipulation of our federal budget is sheer legalized accounting fraud to present a false picture of financial competence and prudence.  The accelerated increase in size of our hidden debts, if unchecked, will sooner or later cause a massive shock to our financial system, not too different from what the Greeks are suffering from today.  When the shit hits the fan, Malaysians and our children will certainly be made to pay for it.

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Of Debt Ceilings and Creative Accounting

The Loan (Local) Act 1959 and Government Funding Act 1983 puts in place a 55% federal government debt limit relative to Malaysia’s Gross Domestic Product (GDP) as determined by the Ministry of Finance (MoF).  Based on the Government’s Economic Report 2011/2, our federal government debt will hit RM455.7 billion as at the end of 2011 which works out to 53.8% of our GDP, or a whisker away from the statutory borrowing ceiling.

However, what is worrying is the fact that the “statutory borrowing ceiling” has actually been raised multiple times by the Barisan Nasional (BN) Government over the past decade to “legalise” the federal government debt level which has been increasing at a much faster pace than our GDP.

The 55% statutory borrowing ceiling only came into effect in July 2009 by order of current Second Finance Minister Dato’ Seri Ahmad Husni Hanadzlah.  Prior to the revised limit, the limit was set at 45% in June 2008, barely 13 months before by the then Second Finance Minister Tan Sri Nor Md Yakcop.

It was 5 years before that when the limit was raised to 40% in April 2003 by the then Second Finance Minister Dato’ Sri Jamaluddin Jarjis.

Hence our statutory borrowing ceiling has been raised by 15% of our GDP in just 6 years.  The question is if the ceiling is repeatedly raised with such nonchalance, why did the Government bother setting a limit at all?  Given that our debt level is expected to increase beyond 55% over the next 2 years, are we expecting the Federal Government to once again raise the ceiling in Parliament to circumvent the breach?

In fact, we are extremely concerned that the Federal Government, which is mindful of their debt level relative to the GDP, is using all sorts of creative measures to by-pass the limit set by law.

It should be noted that the MoF will be raising approximately RM20 billion to fund the first phase of the Klang Valley MRT mega-project this year.  However, based on the fact that the MRT was never debated in the 2012 Budget tabled in Parliament for approval last year, it is clear that the funding will be raised by a wholly-owned “special purpose vehicle” (SPV) known as Dana Infra, and guaranteed by the Government.

This way, the BN Federal Government kills two birds with one stone.  Firstly, the debt raised will not be part of the Federal Government debt (because Dana Infra is “not” Federal Government) and hence will not be perceived to jeopardise our credit standings.  This is despite the fact that all parties are expecting MRT to be a financially loss-making project and that the Federal Government will have to fund Dana Infra’s debt repayments at some point in the future.

Secondly, by placing the debt and expenditure of the MRT project in a SPV, such expenditure then escapes the purview of direct parliamentary oversight because it is never debated in Parliament as an official Budget item.  As mentioned earlier, there is not a single line item in the 2012 Budget approved at the last parliamentary sitting for the purposes of constructing an MRT despite the fact that this will be Malaysia’s largest ever infrastructure project by far.

Such creative manipulation of our federal government debt and expenditure is not limited to just the MRT project but many other multi-billion ringgit projects such as the construction of 74 police headquarters with government-guaranteed RM10 billion debt by MoF-owned Pembinaan BLT Sdn Bhd, or the proposed RM20 billion sukuk plan by Pengurusan Aset Air Bhd (PAAB) to restructure the country’s water assets.

Governments all over the world, especially in developed countries like the United Kingdom and Germany, are now changing their laws to require such debts and contingent liabilities to be incorporated into the Government’s financial statement to ensure greater transparency and financial accountability.  This is to avert a financial crisis which has already enveloped the Euro-zone over the past 2 years.

However, it appears that the Malaysian government is still sitting back and resting easy, while making full use of the “loop-hole” in our government financial reporting standards to continue to recklessly indebt future Malaysians with none of the checks put in place.

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Off Balance Sheet, Contingent Liabilities and Hidden Debts

Based on the Government’s Economic Report 2011/2 published last year, our Federal Government debt will hit RM455.7 billion as at the end of 2011.  This was a 11.9% increase from RM407.1 billion incurred in 2010.  Our debt levels have been increasing rapidly in recent years compared to RM242 billion in 2006 and RM146 billion in 2002.

As it stands, our Federal Government debt has hit 53.8% of our Gross Domestic Product (GDP) compared to 53.1% in 2010 and 44.6% in 2006.

However, what is of greater concern is the Government “off-balance sheet” financing which isn’t reported as Federal Government Debt.  In recent years, the Government has increasingly issued debt papers via its statutory bodies and corporatized entities.  These loans are obtain with guarantees provided by the Government, but are not reflected as Federal Government borrowings.

In 2010, the “off-balance sheet” financing activities has hit a record high of RM96.9 billion in 2010, a 14.9% increase from RM84.3 billion in 2009.  These are loans which have been taken with a Government guarantee, which the Government is obligated to pay should the borrowers fail to settle the debts.  As an example, if the Federal Territories Foundation is unable to repay the proposed RM300 million loan from EPF to provide financing for the low-cost housing purchasers, then the Government will have to step in to make the RM300 million payment to EPF.

Hence for all intents and purposes, even though these loans are not taken by the Government, they are essentially government debt or otherwise known as contingent liabilities.  Adding RM96.9 billion to the current debt of RM455.7 billion, the effective debt which Malaysian tax-payers are liable for is RM552.6 billion.  This expanded figure would then constitute 65.2% of our GDP, well above the 55% federal government loan limit as defined in the Loan (Local) Act 1959 and Government Funding Act 1983.

The list of statutory bodies and corporate entities which have been given Government guarantees are as per the table below.  Based on the list, there are some serious concerns over the performance or non-performance of these loans which will require bail outs by the Federal Government.

For example, the PTPTN and Syarikat Prasarana Negara Bhd owes RM17.0 billion (17.5%) and RM9.1 billion (9.4%) respectively and they have both been heavily criticized by the Auditor-General for their weak financial management and their inability to repay their loans.

The list also includes Syarikat Penerbangan Malaysia Bhd (RM7.0 billion) which was set up to bail out Malaysian Airlines System (MAS); 1MDB (RM5.0 billion) which in turn lent nearly all its money to a questionable foreign company, PetroSaudi International Limited and Silterra Bhd (RM1.0 billion) which has made more than RM2 billion in losses to date.

What is interesting is also the fact that loans of Tan Sri Syed Mokhtar Al-Bukhary-owned Port of Tanjong Pelepas (PTP) also received financial guarantees from the Government.  PTP’s “guaranteed” loans have in fact increased from RM715 million in 2009 to RM1.275 billion in 2010.

Expert testimonies in 2009 in the United Kingdom Parliament has heavily criticized Government guarantees to statutory bodies, government-linked companies or “private-finance initiatives” as an attempt to hide real debt levels in order to achieve better credit ratings.  Professor Dieter Helm of Oxford University said that such initiatives had succeeded as "an exercise to get investment off the public balance sheet so that the debt numbers look better than they otherwise would have done."  The Greek financial crisis has similarly unraveled as a result of hidden contingent liabilities not reflected as official government debt or reported in its balance sheet.

For a start the BN government must reflect all its guarantees and contingent liabilities in the annual Economic Report and Budget to be debated in Parliament and it must impose measures to slow down the rate of growth of Malaysia’s debt levels.  Malaysia should not wait for a major financial crisis of Greek proportions before attempting to reform our public sector finance.  At the pace which our debts are increasing, we are accelerating headlong into a financial disaster.

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