This article first appeared in Forum, The Edge Malaysia Weekly on November 7, 2022 - November 13, 2022
Malaysia’s traditional reading of the proposed Budget 2023 was brought forward earlier to Oct 7 and the surprising announcement of the dissolution of parliament happened literally the next day, sending many economists and financiers into a tizzy. “What happens to the budget just read?” was one of the big questions on everyone’s mind. The vague answer from the government that it may be the same budget or a different one was not reassuring.
Mind you, the proposed 2023 budget has not been approved by parliament and the prime minister stated that it would be presented again after the 15th general election (GE15).
As it is, the government is an unprecedented patchwork one. After 61 straight years in power, the ruling Barisan Nasional (BN) coalition lost to Pakatan Harapan (PH) in GE14. However, barely two years after the historic win, the then PM resigned and his party, Bersatu, pulled out of the PH coalition, causing the collapse of the government. This was in the teeth of the highly dangerous Covid-19 pandemic, then just starting. As a general election at that time could not be held without endangering millions of people, the king, with the full support of the Rulers’ Council, asked every member of parliament who they would support as prime minister. The majority declared for the new leader of Bersatu, a veteran politician himself, and so a new coalition of formerly opposition parties of mainly BN and Bersatu joined together to form one government, called Perikatan Nasional (PN). Dogged by uncertainty as to whether Bersatu’s chief did actually have the majority of parliamentarians behind him (all this during a raging pandemic, no less), he resigned and passed the premiership to one of his deputy PMs, a capable man from BN. A year or so later, after the Covid-19 lockdowns were lifted nationwide, parliament was dissolved.
With three different lead parties forming the government, one must ask, what kind of a budget would come to Malaysia for 2023, given that for the first time ever, the country had three different parties leading the government? In just about every other country in the world, a political party has its own distinctive focus on the economy, hence, whichever is in charge pretty much has a different budget compared with another party that was in charge earlier.
So, let us look at the major spending categories for the budget in Table 1 and the five major sectors in Table 2 to see if there were indeed major changes applied by each of the three governments, first by BN in 2017, then by PH in 2018 and 2019, then Bersatu in 2020 and 2021, and then back to BN in 2022. Here we define it by which party the sitting PM is from, rather than the coalition per se. We arbitrarily define a “major change” as changing the proportion of the budget assigned to it by at least 10 percentage points, for example, if the economic sector’s allocation moved from 8% to 18%.
It is rather obvious from Table 1 that there was no major change on a year-to-year or administration-to-administration basis. However, for the “Supply” category, there was a significant change from 2017 to 2022, that is, over six years. The peak was during PH’s term in 2018 and 2019 at 61+% of the national budget, before the PN government (led both by Bersatu and BN respectively) brought down “Supply” spending, most probably to spend on the Covid-19 fight and give aid to those worst affected by what turned out to be a two-year national lockdown. We investigated the veracity of this assumption and display the results below.
It appears there is one major change, between 2019 and 2020, where the “Others” was reduced from 43.6% to 33.4% but it was done by the same Bersatu government, hence, is not a reflection of the economic philosophy of the party.
Otherwise, the structure of the budget appears rigid and relatively inflexible year to year.
A review of the 2020, 2021 and 2022 budget papers at the Treasury website does not reveal how the aid spending for the pandemic was accounted for. Indeed, many of the ministerial accounts were not even posted for 2021 and 2022. Given the lack of clarity, we can only conclude that these drops did happen but the why is unknown.
Hence, one must come to the conclusion that throughout basically three different parties leading the government since 2018, no imprint was made on the budget for the country that would show their respective distinctive economic strategies. This means that for 2023, the budget that Malaysia is going to get is the same old, same old.
The problem is that in Budget 2023, there was no visible economic strategy other than handing out money to the less fortunate and most vulnerable. One is reminded of the saying, “Give a man a fish and he eats a meal, teach him how to fish and he eats for a lifetime.” The real danger is to generate dependency, and this would be a heavy burden to carry forward. Missing rather visibly is what has happened to the steps on the continuous journey towards Malaysia becoming a developed nation. Or has that been abandoned already, defeated by the middle-income trap?
Here is the tough part: the International Monetary Fund recommends that post-pandemic fiscal budgets be as flexible as possible, to meet any unforeseeable contingencies, like war (look at what happened to Ukraine) or natural disasters. Can Malaysia cope without such flexibility? It is too easy to resort to additional borrowing, which has its limits and Malaysia is awfully close to them. Disaster awaits beyond the rim.
Huzaime Hamid is the chairman and CEO of Ingenium Advisors Sdn Bhd, Malaysia’s financial macroeconomics advisory company
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