This article first appeared in Forum, The Edge Malaysia Weekly on May 3, 2021 - May 9, 2021
During my briefing on the country’s economic and financial position, reporters asked some questions about the National Trust Fund (KWAN). I am sure these questions are also on the minds of the people. This is my explanation on the issue:
Basic information on KWAN
The National Trust Fund or KWAN was established via the National Trust Fund (KWAN) Act 1988 (Act 339). As at Dec 31, 2020, KWAN’s net assets amounted to RM19.5 billion, comprising contributions from Petroliam Nasional Bhd (Petronas) (RM10.4 billion) and accumulated returns on investment (RM9.1 billion).
Section 6 of Act 339 allows KWAN funds to be used after the expiration of 10 years from the first year of the Act (1988) to finance development projects and provide soft loans to the federal or state governments.
KWAN was established to ensure the optimal use of the country’s natural resources for the benefit of the country and future generations. We are the intended future when this fund was established.
The amendments to KWAN Act 1988 through the recent Emergency Ordinance allows KWAN funds to be used ONLY FOR VACCINE PROCUREMENT and any expenses incurred in connection with vaccines for any outbreak of infectious diseases.
The estimated RM5 billion for vaccine procurement only uses the total investment returns generated, the principal amount of RM10.4 billion still remains and is not used.
Have funds from KWAN ever been utilised?
In 1998, a total of RM42 million was used for the Wetlands Project.
Why do we need to use KWAN funds?
The crisis we are facing is not an economic crisis like in 1998 and 2008. It is a simultaneous health and economic crisis.
Vaccination is the key to economic recovery and there is no other best measure to protect the people other than by ensuring group immunisation through vaccination.
The objective of KWAN when established 33 years ago was to protect “future generations”. Who else is the “future generation” if not us, at a time when we are facing the challenge of Covid-19, which is probably the most severe and serious crisis in the history of our country? An effective vaccination programme must be given priority to ensure the well-being of the people and the country.
If not now, then when is the best time to use the KWAN Fund? In addition, the KWAN Fund was previously used in 1998 for the development of the Wetlands Project. If it can be used for the Paya Indah Wetlands development project, isn’t the need to use it for a vaccination programme that can guarantee the future of future generations even more pressing?
Why KWAN? Can’t the government borrow at a low rate?
The government has inherited debts and loans and its liabilities are now in excess of RM1 trillion, including loan guarantees without repayment sources such as 1MDB, 1MDB Energy, SRC International and others.
The government has also inherited other liabilities such as the RM48 billion Private Finance Initiative (PFI) debt following the previous approach of spending off-budget, without allocations from the annual budget. On the principle of transparency, the current government will not repeat this off-budget spending practice.
The repayment commitment for these liabilities is estimated to be more than RM20 billion a year for the next five years, or at least RM100 billion! This RM100 billion would have been enough to cover the cost of the vaccine 20 times, or over eight times the direct assistance for B40, many times the PRIHATIN Special Grant and wage subsidy initiative, and better support for our frontline workers!
Hence, the government is not only facing limited fiscal space in dealing with the Covid-19 crisis, but we also need to meet unproductive legacy debt obligations as well as liabilities made off-budget in the past.
Furthermore, we should not burden the future generations with excessive and undue debt. The government has a responsibility to take care of the current generation, to ensure that future generations will be able to enjoy prosperity.
Will the government replenish the KWAN Fund? Who will monitor the use of the funds?
The government is committed to replenishing the KWAN Fund when the crisis is over and the government’s finances have recovered. The use of KWAN funds in the form of grants is also important to ensure that the fiscal deficit remains below the 6.0% target by the end of 2021.
If the RM5 billion for vaccines is not drawn from KWAN funds, the government’s borrowings would be much higher and the fiscal deficit is likely to increase.
KWAN is regulated by five trustee board members who make all policy decisions before submitting them to the government. The board of trustees includes government and private/professional representatives. KWAN is also audited annually by the National Audit Department. Therefore, the check and balance element remains secure despite specific and limited amendments to the use of KWAN funds. Rest assured that the government always strives to do the best for the people.
Tengku Zafrul Tengku Abdul Aziz is Finance Minister of Malaysia
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