IT is certainly not an easy task to get an interview with Second Finance Minister Datuk Johari Abdul Ghani.
The Edge has been trying to sit down with him for months now but the minister’s schedule has not permitted a tête-à-tête. However, Johari answered questions emailed to him , and while this is not the same as a face-to-face interview, it is nevertheless revealing.
The Edge: There are growing concerns that the public coffers are shrinking and consequently the government is on a very tight budget. How are the government’s financials?
Datuk Johari Abdul Ghani: As you know, for the past 1½ years, oil prices have dropped more than 70%, from a high of US$115 per barrel to below US$30 per barrel. In 2014, the government’s oil revenue was roughly RM65 billion. Last year, it was only RM30 billion.
Despite the reduction in revenue, we are fortunate that the government implemented the Goods and Services Tax (GST) and rationalised subsidies. This has, to a certain extent, mitigated the impact of the [dip in] oil revenue on the economy. Thus, we were able to maintain our deficit target of 3.1% last year. Managing the deficit is key to any government in order to sustain favourable sovereign ratings and low interest rates. This benefits the rakyat in the long run.
Critics point out that although the man in the street pays GST every day and personal income tax every month, the government still lacks money. Does this mean that the increase in public revenue is not keeping pace with the rise in government expenditure? Why is this so? Would it be fair to say more effort is needed to plug leakages?
Well, in the past, we paid the Sales and Service Tax and income tax. Now we are paying GST and income tax. GST is an efficient system that can address the issue of untraceable and non-taxable business transactions, otherwise known as the ‘black/shadow economy’. GST enables the government to capture revenue that would otherwise be lost to the black/shadow economy.
I agree that despite the increased collection of tax due to the implementation of GST, the government finds itself in an increased spending position. For instance, the government spends about RM70 billion a year on improving the economic welfare of the people, such as healthcare, education and social services.
Additionally, we have 1.6 million government employees whose emolument and pension amounted to RM74 billion and RM19 billion respectively last year. Such expenditure (healthcare, education, social services, and emolument and pension) totalled more than RM160 billion or 77% of the government’s revenue last year. Also, the interest cost on government borrowings alone is about RM25 billion or 11% of the government’s revenue.
In respect of the number of government employees, the education sector has 576,000, the security forces, including the police, have 352,000 and the healthcare sector, 240,000. These three sectors constitute more than 70% of the government’s workforce.
Can the government afford to have Petronas cut its dividend payment further — to less than RM16 billion? Is there too much dependence on Petronas?
In 2014, the government received RM29 billion in dividends from Petronas, and in 2015 and 2016, the dividend payments were RM26 billion and RM16 billion respectively. This year, we are expecting about RM13 billion. At the current oil price of US$54 per barrel, we see no problem in Petronas meeting that expectation.
What are your thoughts on Bantuan Rakyat 1 Malaysia (BR1M)?
I support the continuation of BR1M in order to help cushion the impact of GST and subsidy rationalisation on the lower-income segment of society, in particular the B40 group.
How does the government plan to drive economic growth?
The government will continue to promote export-related activities, aggressively promote our tourism industry and emphasise productivity and innovation across the manufacturing sector.
The focus will continue to be on higher value-added manufacturing activities and the downstream production of commodity-related products, such as oil palm, rubber, petroleum and gas. This will further multiply the usage of our natural resources to create more
value-added products.
Some say 1Malaysia Development Bhd’s (1MDB) RM42 billion debt is barely a fraction of Malaysia’s GDP, which stands at above RM1 trillion. Others say the debt is huge and will bring us down. Can you comment?
I would like to clarify the figure on 1MDB’s debt. The current 1MDB debt stands at about RM21 billion. This is supported by 1MDB’s land in Bandar Malaysia, Tun Razak Exchange, Ayer Itam and Pulau Indah, which is valued at more than RM20 billion. The land has a combined potential development value of more than RM100 billion. In addition to that, there is a US$3.5 billion bond outstanding, which is guaranteed by IPIC (International Petroleum Investment Company). 1MDB is currently going through an arbitration process in respect of a settlement dispute with IPIC Group.
If 1MDB wins the case, that will reduce its debt further. Based on the facts of the case, 1MDB’s management is confident they can win the case. Meanwhile, we will continue to develop the Bandar Malaysia and TRX land with the respective join-venture partners.
What about perception? How badly has 1MDB impacted us in terms of perception? Do you think there is generally a trust deficit now after 1MDB?
Since Malaysia is an open economy with trading partners all over the world, certainly we are exposed to the negative news on 1MDB. Despite that, the world continues to acknowledge that our economic fundamentals remain intact. That is why the three major rating agencies (Fitch, Moody’s and S&P) still maintain our rating at A-.
How much has the sharp depreciation of the ringgit hurt the domestic economy? Do you think the weak ringgit, which has depreciated the most among all currencies against the US dollar since 2015, is evidence of how 1MDB has affected the country’s sovereign rating?
Well, if you look at the average oil price in 2013, it was more than US$100 per barrel. At the time, our ringgit to USD was about 3.10. Last year, the average oil price was US$44 per barrel and our currency was trading at about 4.48. If you notice, there is a direct correlation between the oil price and our currency. Even though the oil price has improved slightly recently, new factors are affecting us. For example, the anticipation of a hike in US interest rates has created uncertainties in the global financial markets and China’s domestic economy while heavy speculative activity in the ringgit on the offshore forex market has contributed to depreciation pressure on the currency. In respect to China’s economy, Malaysia’s trade with the country has reached about 15% of our total trade. Thus, if anything affects China’s economy or its currency, it will indirectly affect us too.
What are the three biggest challenges for the government now?
First, we are facing marginal growth in the government’s revenue as a result of declining global oil prices. This has affected our ability to continue enhancing our services to the rakyat and to intensify spending on infrastructure projects. Second, managing the ever-rising cost of living in the country, and third, meeting and fulfilling the rakyat’s high expectations of the government.
There are certain quarters who view the ruling coalition Barisan Nasional (BN) as being at its weakest in its history. What is your view on this?
If we were to look at the Sarawak election in May last year, BN managed to secure more than two-thirds majority. In the recent by-election in Sungai Besar and Kuala Kangsar, BN returned with an even bigger majority despite the noises out there deriding its ability to lead. I strongly feel that the majority out there still support the BN government.
Never in the past have infrastructure projects, for example the RM200 billion port on Carey Island and the RM55 billion East Coast Railway Line, been criticised so much. Do you think all these issues will have a bearing on the next election?
As far as I’m concerned, the government never committed to the RM200 billion port on Carey Island. I am not sure how you arrived at this figure of RM200 billion. Anyway, with regard to the RM55 billion East Coast Railway Line, it has been fully justified by the Economic Planning Unit. This project forms part of the major infrastructure developments that will stimulate economic activity in the country. I am sure the rakyat will view them positively, especially those living on the east coast.
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