BUDGET announcement for 2023 is on October 7. It is the core of any government’s agenda – a proposal to raise revenues and spend wisely. It shows the government’s strategy to allocate scarce resources and its political leanings and priorities.

I am game if the finance minister allocates RM400 billion for 2023 (2022: RM332.1 billion) but make sure there are sufficient revenues to support it and spend wisely.

Every year promises were made to continue to drive the nation’s medium- to long-term growth to achieve a more equitable sharing of the nation’s wealth. But, do we have a sturdy structural support to provide the necessary stiffness and strength to resist internal and external headwinds?

Budget 2022 was a record but a former second finance minister made some comments. There are structural problems and we need a great reset. He advised the government to provide sound leadership and a clear direction to overcome it.

One of the biggest issues is operating expenditure (OP). New initiatives were limited because more than 90% of the OP remained in committed expenditure (civil servants’ salary and pension, government debt servicing charges, government supplies and services, and subsidy spending). Fiscal deficit was expected to increase, and OP can only be financed by revenue and not borrowings. Expenditure keeps increasing but revenue, flatlining. Development expenditure is good for future growth assuming economic recovery and a rebound in revenue. But importantly, ensure money is spent strategically.

Debt to GDP increased to 65% and the total government debt increased from RM680 billion in 2017 to more than RM 1 trillion now excluding the contingent liabilities of entities such as 1MDB, SRC International and SSER (Suria Strategic Energy Resources Sdn Bhd).

Malaysia was the third largest economy in Asean but today, we are sixth. Annual average GDP growth of 3.9% between 2008 and 2020 was the slowest in the region. Our GDP per capita average annual growth was only 1.9% over same period while others, more robust.

Household debt to GDP in 2021 is close to 90% indicating that low-income households remain stretched financially.

A World Bank lead economist for Malaysia said Budget 2023 is likely to be expansive but there are fiscal limitations and structural constraints and need to save some firepower for rockier times. Latest survey finds 70% of lower-income households can’t even meet monthly basic needs with more than 60% of them without savings. Food inflation is high and productivity growth, mixed. And Malaysia needs to rebalance importing low skills and exporting its high skills manpower.

Headline growth figures gives a false sense of complacency and it matters how growth is generated and shared.

Structural weaknesses were highlighted even earlier by Fitch Ratings in January 2015. Rising contingent liabilities remain key sovereign credit weaknesses and weakening external liquidity. The financial position of 1MDB became a source of uncertainty.

Budgetary mismanagement of the public sector is often veiled. A study done in 2017 showed the Auditor-General Reports (AGR) highlighted three core issues – overspending, shortfall and bunching expenditure. Numerous efforts to improve non-compliance of rules and regulations have proven less potent. Poor asset management is another issue.

The ministries involved are those with large allocations (over RM1 billion) and continue to prevail within the same ministries. However, there are some improvements.

The study also showed these issues have turned to be a culture through lack of coordination, systemic monitoring, policy inconsistency and negligence. The degree of awareness on budgetary mismanagement issues is higher at support staff than the budget managers.

Payment system with financial codes e.g. 23000 allows spending without allocation. Insufficient allocation in some ministries and departments also results from unrealistic reduction in the budget ceiling set by the Ministry of Finance.

Other factors include absence of top management support, complexity of task, insufficiency of suitable training, complexity of standard operational procedures, inadequate delegation of power and lack of coordination.

Also, weak enforcement impedes compliance with regulations.

Initiatives adopted such as Public Finance Reforms (2010) under the Economic Transformational Programme, ISO 9000 and key performance indicators (KPIs) hopefully will mitigate issues.

Budgetary mismanagement is detrimental not only to public administration but also to national macroeconomic management.

Another issue is a huge gap between policy making and implementation at the ministerial level. A top-down approach is less effective especially in obtaining support from public officials when detailed information is not cascaded downwards.

Further, monies allocated to one agency are not transferable to another within the same ministry. Generally, agencies with surplus will try to finish the allocation through various means and those requiring additional budget will request for supplementary budget.

Financial controllers and budget managers of ministries and departments need to give their full commitment and support and are responsible in overseeing and monitoring – not to mention chief secretaries too.

As for transparency, the Institute for Democracy and Economic Affairs (IDEAS) produced a paper in 2016 – “How Can Malaysia’s Budget Documents Be Improved?”. For citizens to evaluate government strategy and commitments, the government should include documents that will allow the public to scrutinise its plans.

The Open Budget Index (OBI) evaluates the quality of budget documents around the world. In 2015, Malaysia obtained a score of 46 out of 100, which means the government has not provided adequate information. For example, limited information on extra-budgetary funds, contingent liabilities and future liabilities.

There are no disclosures on sensitivity analysis, total debt burden at budget year-end, financial assets and total liabilities of the budget year, impact of liabilities on financial situation, medium-term fiscal strategy and forecast assessment of sustainability of current policies.

The Year-End Review or Penyata Kewangan Kerajaan Persekutuan does not explain the differences between the enacted and actual expenditures. Nor an overview whether the government has achieved the policy objectives set for the budget year.

Effective implementation with urgency is key to the national budget. There are many complaints on accessing loans, grants and programmes. Processes and paperwork need to be reviewed.

Sadly, there has been very little debate about economic policy across the political spectrum during the budget preparation and is regrettable.

Let’s see whether the welfare of Keluarga Malaysia will be sufficiently taken care of on October 7.

What say you? – October 5, 2022.

* Saleh Mohammed reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.