This article first appeared in Forum, The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022
Last week, Prime Minister Datuk Seri Anwar Ibrahim announced that Tan Sri Syed Mokhtar Albukhary would allocate RM60 million to poor paddy farmers.
However, the sum, to be paid over two years, will not leave a dent in the wealth of the tycoon, whose net worth based on his interest in listed companies was RM3.5 billion as at the end of last year.
Syed Mokhtar, who has an empire covering ports and power plants to food and automobile businesses, forks out more than RM60 million in interest servicing alone for his entire conglomerate. Having to pay RM10 million this year and RM50 million next year to paddy farmers is not a stretch for the low-profile businessman.
In return for the RM60 million, Syed Mokhtar earns goodwill from the government led by Anwar, who himself scores brownie points with the farmers.
However, the consequences for the economy and capital market are far bigger. The request casts fears and doubts on the sanctity of government contracts.
If Padiberas Nasional Bhd (Bernas), which is owned by Syed Mokhtar, had decided to share a bigger portion of its profits with the paddy farmers, the announcement should have come from the company itself. It would be viewed as minimal interference from the government.
At the same press conference, Anwar also disclosed that there were irregularities in the RM600 billion spending of the previous government in 2020 and 2021, during the pandemic.
The Malaysian Anti-Corruption Commission (MACC) will be calling up former prime minister Tan Sri Muhyiddin Yassin, former health minister Khairy Jamaluddin and current trade and industry minister Tengku Datuk Seri Zafrul Abdul Aziz, who was finance minister during the period.
During the pandemic, the government’s fiscal package came up to RM530 billion. It included withdrawals from the Employees Provident Fund (EPF), a moratorium on loans and direct cash assistance to poor families that came up to RM83 billion.
There were no less than eight stimulus packages announced between March 2020 and June 2021 that were aimed at alleviating the hardship of the people and businesses going through during the economic downturn. The fiscal stimulus of RM530 billion is the largest in Malaysia’s history.
There could have been some leakages. But it certainly cannot be to the tune of hundreds of billions.
The Malaysian public sector does not have that kind of money. The country’s international reserves are only RM484 billion.
The new government has also broached the subject of Digital Nasional Bhd’s 5G rollout and cutting down the number of special draws by gaming companies.
While it might be a case of a new broom sweeps clean, the changes by Putrajaya should not rattle the business community.
In 2018, after the Pakatan Harapan (PH) government took over, there was a review of the many transactions undertaken by the previous government. To be fair to the PH government, it had a lot of cleaning up to do after taking over an administration ruled by Barisan Nasional (BN) for more than 60 years.
Contracts were lopsided and inflated, and governance in the handling of public funds was dismal. The PH government renegotiated contracts and initiated charges against those responsible for corruption and abuse of power. For example, former prime minister Datuk Seri Najib Razak is now in jail.
In essence, it instilled governance and accountability.
However, the civil service was reluctant to embrace the changes while the private sector was not prepared to face the consequences of the shift in power in Putrajaya.
The PH government’s review and renegotiation of procurement contracts resulted in projects coming to a stop, affecting the economy. Banks providing financing to companies undertaking jobs awarded by the previous government quickly pulled back credit lines. Without private sector initiative and funding, government contracts were disrupted.
The eventual outcome was a negative effect on the ground.
Having learnt from the bitter lesson of 2018, it serves little purpose to delve too much into transactions that had been entered into by the previous government. There is a need to emphasise reforms but there is no rush to implement them yet.
On this score, the ministers from DAP are setting the right tone in comforting both the private sector and the civil service. Transport Minister Anthony Loke has said that there will not be any changes to the alignment of the East Coast Rail Link while Youth and Sports Minister Hannah Yeoh has stated that there will not be any changes to policies in the ministry until she hears out the athletes.
The Anwar administration does not have the luxury of time to bicker with political opponents. Neither can Anwar afford to open himself up to criticism on too many fronts.
His immediate tasks are to ensure he wins the confidence of members of parliament on Dec 19 and re-tables the 2023 Budget.
Between the two, readjusting the budget is a more difficult task. The budget of RM372.3 billion is based on oil being at US$90 per barrel. Petroleum-related revenue makes up about 21.6% of the federal government’s revenue.
Crude is now at less than US$80 per barrel due to the slower global economic outlook for next year and sanctions on the export of crude from Russia.
According to the International Monetary Fund (IMF), global growth is expected to moderate to 2.7% next year compared with this year’s 3.2%. The IMF’s year-ahead forecast growth is the lowest since 2001.
As for Russian oil, the European Union, the US and the UK have imposed a price cap of US$60 per barrel for exports from that country. Insurance companies will not provide coverage for ships transporting the oil unless it is sold at US$60 per barrel.
Saudi Arabia, which leads the cartel of major oil-producing nations that includes Russia, has signalled that it will cut production next year to prevent crude oil prices from slipping significantly, like what happened in 2014.
But the US wants Saudi Arabia and its allies to increase production to bring down prices further to help battle inflation. The Federal Reserve has led the group of countries in raising interest rates to stave off inflation. In the process, the economy is slowing down.
Between the US and the Saudi-led oil-producing nations, it is likely that the former will finally come out the winner in dictating a lower crude-oil price regime.
Malaysia’s problem is not confined to lower oil prices that will impact the federal government’s revenue. Its challenges are to find avenues to cut down on spending without impacting the economy and the people.
The biggest tasks ahead for Anwar are to implement targeted subsidies and reforms in tax collection such as reintroducing the Goods and Services Tax (GST) to broaden the revenue base.
A new tax system is never popular. Just look at the proposed targeted subsidy that has been talked about since Tun Abdullah Ahmad Badawi became prime minister in 2004 but has never been implemented.
These are difficult measures but they need to be taken for the benefits to filter down to the people.
The Anwar-led government needs a compelling story of economic reform. It cannot be just political rhetoric but must be translated into action. The people must “feel good” about the economic reforms.
It is more about ensuring that each ringgit spent by the government gives a higher return. And certainly less of politicking to gain popularity as the election is over.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.