UNCHECKED overspending by the Prime Minister’s Office and disproportionate allocation of development funds have led to the official government debt fast approaching RM700 billion, said a prominent economist.

Former United Nations assistant secretary-general Jomo Kwame Sundaram said there was an urgent need for greater transparency and accountability in “off-budget” infrastructure spending, which is not part of the federal government budget and is thereby unaccountable to Parliament. 

“What Malaysia needs now is more appropriate development expenditure, not yet more operating expenditure, especially for the PMO, which has grown more than tenfold and has centralised power like never before,” Jomo told The Malaysian Insight in a telephone interview recently.

“Meanwhile, most infrastructure spending is not on the federal budget, and often involves dubious public-private partnerships, further reducing transparency and accountability, as (witnessed in) the recent rush to start the ECRL (East Coast Rail Line).”

Jomo recommended that allocations to the PMO be slashed to lower rising debt.

The PMO was allocated RM17.43 billion in Budget 2018, almost double the RM8.938 billion it received in 2008. 

Mega-projects such as the ECRL, Tun Razak Exchange, and Bandar Malaysia should also be scrutinised by an independent bipartisan parliamentary committee chaired by a member of the opposition party, said Jomo.

In the case of the 688km ECRL, should the rail system, which costs RM55 billion, nearly 8% of Malaysia’s public debt, fail to generate the expected level of demand and return on investment, it can put the government highly in debt to China.

“ECRL would never pay for itself. Right now, the estimated government debt is large and it is growing very fast. When you talk about debt, you have to consider both the official debt as well as the government guaranteed debt.

“And because there’s no accountability for the government guaranteed debt, there’s a lot of room for hanky-panky. There’s hardly any reporting and so on.”

Jomo said there was also a need to prevent abuse of public-private partnerships, as “ultimately it is the public that bears the costs or the bulk of the risks, while the profits mainly accrue to the private partner”.

Jomo, a visiting fellow at the Khazanah Research Institute, has been a vocal critic of the government’s rising operation expenditure, which has grown an average 6% yearly for the last 10 years.

Operations spending grew from RM123.10 billion in 2007 to RM219.91 billion in 2017, exceeding Malaysia’s revenue which grew at an average of 4.9% yearly since 2007, when revenue stood at RM139.9 billion to RM225.34 billion in 2017.

Federal debt during the same period rose 10% annually from RM123 billion in 2007 to RM687.43 billion as at September 2017.

A recent report by The Edge Markets revealed that going by an annual growth rate of 10.7%, Malaysia’s debt could reach RM1 trillion by 2021 on excessive spending. 

By the same projection, Malaysia’s debt could reach RM2 trillion in 2028 and RM3 trillion in 2032.

Funds diverted to service debt

Jomo said high public debt, if left unaddressed long-term, would put the country at risk of default. 

“Taking on debt for productive uses is generally desirable. However, much of the recent debt is not being used productively.

“Also, the government should be paying down debt or reducing debt when the economy is growing and incurring debt when there is a slowdown.

“However, for the last 10 years or more, we have just been taking on more and more debt, even when we claim the economy is growing well, which is usually seen as fiscally irresponsible,” he said.

Jomo said servicing the interest for high public debt diverted funds from other sectors, which would benefit the people, such as healthcare or education.

“Apparently that is the case in Malaysia where, allocations to public universities have been cut by more than half in the last two years,” he said.

While he acknowledged the need for development expenditure for the economy to progress, Jomo said the funding should be more targeted and “appropriate”.

“They should fund research, for example, to increase the productivity of oil palm by increasing its productive life span to 90 years from the current 25 years.”

“Malaysia’s most successful industrialisation story is not electronics, which is controlled by foreign companies but palm oil, which is controlled by Malaysia,” he said. – February 4, 2018.