Malaysia Seeks World Bank Help to Cut Spending, Trim Deficit

By Soraya Permatasari and Barry Porter | Bloomberg

Nov. 12 (Bloomberg) — Malaysia will ask the World Bank to help in the country’s efforts to cut government spending as Prime Minister Najib Razak seeks to reduce the budget deficit from a 22-year high.

The nation is asking the Washington-based lender to review all areas of government expenditure, including how state contracts are awarded, to prevent waste from inefficiency, Second Finance Minister Ahmad Husni Hanadzlah said in an interview in Kuala Lumpur yesterday. Malaysia hopes the study will bolster the government’s credibility, he said.

“We just want a third party as a check and balance,” said Ahmad Husni, 58. An annual audit of spending at state agencies has shown “some negative findings and we hope that with the involvement of the World Bank, in the future we can see a clean sheet,” he said.

Narrowing the fiscal gap that dates to the Asian financial crisis more than a decade ago would help boost chances of lifting Malaysia’s credit rating, which is currently below that of China and Taiwan. Greater confidence in the Southeast Asian nation’s finances may also help bolster Najib’s efforts to lure investment and rejuvenate an economy that may be overtaken by neighboring Singapore this year.

Growth slowed to an average 4.7 percent a year in the past decade from 7.2 percent in the 1990s, when then-Prime Minister Mahathir Mohamad developed highways and built the world’s tallest twin towers.

Halving Gap

Najib, 57, plans to halve the budget gap in the next five years by cutting subsidies, widening the tax base and reducing expenses, according to a five-year plan he unveiled in June that targeted a shortfall of 2.8 percent of GDP in 2015. The finance ministry expects the budget gap to narrow to 5.4 percent of GDP in 2011 from 5.6 percent this year.

Still, the prime minister refrained from detailing plans to reduce subsidies further or introduce a goods and services tax in his Oct. 15 budget speech.

“There was criticism that Malaysia was too light on reducing operational expenses,” said Vishnu Varathan, an economist at Capital Economics in Singapore. “Malaysia wants to show that efforts to reduce the budget deficit will be addressed promptly and that’s why they are seeking the help of an international organization.”

The government is also doing a study with a consultant to recover an estimated 5 billion ringgit ($1.6 billion) in revenue that it believes it’s failed to collect, Ahmad Husni said. He didn’t say where the additional funds will come from.

Credit Rating

Last year’s budget shortfall of 7 percent of gross domestic product was the biggest since 1987, and the country hasn’t had a surplus since 1997. Standard & Poor’s rates the country’s debt A-, the fourth-lowest investment grade that places the Asian nation below China, Hong Kong, Taiwan and Singapore.

Malaysia’s credit standing “is constrained by its weak fiscal position,” S&P said in June.

The country said in October it will further postpone the implementation of a goods and services levy intended to broaden the tax base. Najib trimmed subsidies for sugar, gasoline, diesel and liquefied petroleum gas in July to save more than 750 million ringgit in government expenditure. Malaysia spends about 73 billion ringgit a year on subsidies, he said in April.

The reduction in subsidies will be done gradually, Idris Jala, a minister in the Prime Minister’s department, said in an interview in Putrajaya, outside Kuala Lumpur, yesterday. The government aims to keep inflation below 4 percent even as prices rise with the subsidy cuts, he said.

Singapore Overtakes

Singapore’s GDP will rise as much as 15 percent to about $210 billion, while the economy of Malaysia will expand 7 percent to $205 billion, government forecasts show.

In September, Malaysia’s government unveiled private sector-led projects worth $444 billion that it said can spur investment. The country plans to build six highways, a mass- transit rail system and a 100-floor, 5 billion-ringgit tower in and around the Kuala Lumpur.

Gamuda Bhd. and MMC Corp., which proposed the mass-transit system, will likely be the master planners, assuming they come up with the best pricing, Ahmad Husni said. Once approved, the project will be broken down into smaller packages that will be tendered openly, he said.

The economy may expand 5 percent to 6 percent next year after growing 7 percent in 2010, according to the Ministry of Finance. Husni said the country aims to achieve 6 percent growth next year.

The World Bank said this week Asian economies may need to turn to capital controls as quantitative easing by the U.S. threatens to spur asset bubbles in the region.

Malaysia isn’t considering capital controls for now, though the central bank is monitoring inflows and officials at a recent Asia-Pacific Economic Cooperation meeting discussed the idea of joint, “multilateral” measures in the future should the need arise, Ahmad Husni said.

“We are benefiting from the capital inflows and the appreciation of the ringgit,” he said. “It’s not affecting our property market like many other countries.”

–With assistance from Ranjeetha Pakiam in Kuala Lumpur, Shamim Adam in Singapore, Patrick Harrington in Tokyo and Paul Allen in Hong Kong. Editors: Stephanie Phang, Chris Anstey

  1. #1 by yhsiew on Saturday, 13 November 2010 - 4:29 pm

    Najib’s government is weak and unable to control spending. It needs World Bank help to cut spending.

    Did Singapore need world bank help to trim its deficit?

    If Najib’s government does not help itself, how can outsiders help?

  2. #2 by DAP man on Saturday, 13 November 2010 - 4:32 pm

    This is an admission that the Finance Minister and his deputies are useless and should resign.
    It is like asking the World Bank what Najib should take for headache.

    World Bank will probably say:
    1. Reduce size of your over-sized civil service.
    2. Abolish NEP
    3. Appoint efficient non-Malays to head your GLCs.
    4. Award contacts based on tenders.
    5. UMNO leaders please don’t be corrupted.
    7. Return the people’s money you have stolen.

  3. #3 by danieltkb on Saturday, 13 November 2010 - 5:12 pm

    wondering why the gov cant solve its problems by itself, need to seek external help? it show that the gov is uncapable to make decision. why shld such gov still in power, let’s pick the gov whom capable in handling finance and economic planning for th country.
    hope this message is very clear to them. unable to run the country, step down, let somebody can.

  4. #4 by k1980 on Saturday, 13 November 2010 - 5:43 pm

    How to reduce the budget deficit from a 22-year high?

    Just get rid of Bn and the new PR administration will do so

  5. #5 by monsterball on Saturday, 13 November 2010 - 7:11 pm

    These UMNO B crooks are real sickening weird people.
    They steal and steal non stop…applying double standards making Malaysians confused and disunited.
    The real cause for all UMNO B…yet got the cheek to pretend…so innocent.
    Then wait for Najib to bribe RM1 million to each pathfinder and you can bet…the report and actions are music to the ears for Malaysians and UMNO B to win more votes..they desperately need.

    Malaysia in trouble and need help Najib?
    Who cause all the trouble?
    As long as Najib keep denying….there is no end to his nonsense.

  6. #6 by fed-up on Saturday, 13 November 2010 - 7:23 pm

    The consultant would say that a change of government ASAP will save the country

  7. #7 by Jeffrey on Saturday, 13 November 2010 - 9:05 pm

    World Bank will say the usual – that to move out of the middle-income trap, we would require more investment in hardware infrastructure and equipment and software infrastructure of education and skills supported by improvements of political/economic governance and institutional capacities.

    What we have in abundance is a surplus of Wastage, Leakages and Corruption supported by the most extensive Affirmative Program in the world, a triumph of communal political imperatives over economic imperatives.

    The Deficit we face is the deficiency of transparency, accountability, competitiveness and merit based striving for a culture of excellence – and the requisite Political Will to address it – lacking which, World Bank’s advice will neither help nor garner the confidence of foreign and domestic investors when they see through the disjunct between words and deeds and the gap between aspiration and implementation. Period.

    Why then ask for advice from World Bank on something that we already all know the answer?

    Well PM Najib knows the economic reforms needed by the country are opposed to by his own party power brokers and members whose vested interests lie in preservation of status quo but whose disaffection for his reforms poses a political risk of them coalescing agaionst him to edge him out of his apex position like what happened in his predecessor’s case.

    So to navigate between the dilemmas ie. the the hammer of the nation’s economic imperatives and the anvil of his political detractors’ and rivals’ wrath he tries to leverage on World Bank’s independent credentials to arbitrate, something along these lines – “Hey World Bank is managed by competent technocrats and this is their advice of what we do which if taken will secure confidence of international as well as domestic investors and businessmen. (I am not taking the Opposition’s or Tony Pua’s advice though World Bank’s advice sounds uncannily similar to theirs)”.

    Could World Bank’s credentials ultimately impress and pacify Party’s War Lords and cronies opposed to economic reforms inimical to their vested interests? Likely not. They’d say that their hero TDM (main icon of NEP) could achieve annual 7 -8% growth without heeding World Bank’s and IMF’s recommendations.

    TDM’s time was different conditions and different dynamics but who cares?? There’s a saying, the devil will cite scripture for his own cause.

    The other problem is this: Najib might have abolished TDM’s Foreign Investment Committee and Ahmad Husni may talk of mass-transit system being broken into smaller packages that will be tendered openly but reality is there is no major transaction of any economic consequence in this country that could escape one way or another the requirement of an approval, license, and an exemption from one or more of our regulatory agencies or bureaucracies.

    All these agencies or bureaucracies have internal guidelines and protocols requiring strict adherence to the NEP which policies are to award public contracts to “suitable” or preferred Bumi businessmen or companies and to get state institutions and banks to help them. This cardinal rule is both express and implied.

    One therefore just cannot “belakang” try to deconstruct the NEP by introducing (say) World Bank’s recommendations whilst openly still support the NEP in fear of political backlash!. The agencies or bureaucracies will in their operation follow what one openly and publicly says. They will not cooperate otherwise.

  8. #8 by undertaker888 on Saturday, 13 November 2010 - 9:24 pm

    is this a joke or what? asking word bank as if he doesn’t know what’s going on. please la stop pretending like he pretended about the C4.

    want to trim spending? he can start with the tower he is building. 2nd, get that mamak out of petronas. 3rd get out of governing. your umno kind just dont have the brain to do it. just like the 1malaysia football team losing to China 3-0. No skill, no nothing except playing with brute force trying to injure the opponents.

  9. #9 by monsterball on Saturday, 13 November 2010 - 10:02 pm

    Off the topic….what happen to Attorney General?
    Why no arrest Bala…a self confessed criminal?
    I guess AG will say Bala is half mad….leave him alone.
    And the 3 lawyers are half mad too..concluding Bala answered their 81 questions truthfully.
    Let all forget…I thought nice to remind Malaysians…what kind of AG we have.

  10. #10 by Sallang on Saturday, 13 November 2010 - 10:35 pm

    Who said they cannot manage the economy? LHDN just sent me a summary, outlining 6 years (2001-2006) of outstanding taxes due to the department.Now is 2010. This is efficiency.
    My goodness, as an employee,our tax is very clear cut, and by progressive deductions, should have been reconciled yearly. Now, how do I fight my case? I have since retired, and hope to go to the welfare department to apply for ‘hand-outs’. And here comes the tax man, 10 years late.
    Is this part of ‘widening the tax base’? Not reasonable.
    Not much. rm2000 plus. It is the timing that kills.

  11. #11 by HJ Angus on Saturday, 13 November 2010 - 11:11 pm

    this move to ask World Bank seems to be a mere stalling for time.
    Even if WB agrees to such a move, it will take them another 6 months at least and like those Royal Commissions, the regime can simply ignore the findings.
    No. Malaysians need to find the courage to get rid of this regime without further ado.

  12. #12 by raven77 on Saturday, 13 November 2010 - 11:35 pm

    Asking help from the World Bank is just a diplomatic way by the BN saying “I dont have money and I dont know what to do anymore”

  13. #13 by HJ Angus on Saturday, 13 November 2010 - 11:44 pm

    Penang government has done an excellent job to increase the state coffers.
    Maybe Najib should ask LGE to swap – ask DAP to lead Putrajaya and they can take over the Penang model.
    Maybe they can learn something worthwhile.

  14. #14 by Taxidriver on Saturday, 13 November 2010 - 11:55 pm

    Seeking World Bank help to cut spending and trim deficit? Another UMNOB sandiwara! They want to make Malaysians believe that UMNOB/BN under Najib is serious about reforms to bring the country forward. But once they win the up-coming GE with a stronger mandate, they will be back doing what they only know and know best, i.e robbing the country’s wealth. ( hot, hot chicken shit )

    PR better be fully prepared for snap GE. Going by the look of things, it will be sooner than expected.

    Malaysians must vote for a 2-party parliamentary system. Vote against UMNOB/BN to put them on the opposition bench to stop power abuses and corruption. A 2-party system will benefit the country and rakyat

  15. #15 by assamlaksa on Saturday, 13 November 2010 - 11:58 pm

    how to cut spending? For a start, forget about any world bank consultants that will cost more of tax payers’ money, just dump those corrupt civil servants and politicians and retrench half of
    those inefficient lazy civil servant follow by implementing all the
    rest of the solutions listed above which are given free-of-charge.

  16. #16 by HJ Angus on Sunday, 14 November 2010 - 12:05 am

    I would blame the political leaders more than the civil servants, as excess of which was created by the politicians to become their “safe deposit” in elections.
    So for a start, Najib can trim his over-bloated Cabinet by at least 40%.

  17. #17 by born in Malaya on Sunday, 14 November 2010 - 2:01 am

    Stop the bribery and corruption in UMNO and Malaysia will be one of the riches country in the world.
    Telling the world is a good idea as a form of laughing stock.

  18. #18 by born in Malaya on Sunday, 14 November 2010 - 2:25 am

    World bank will probably says:-
    1)stop wasting time in playing racist politic.
    2)stop calling yourselves superior.
    3)stop encouraging the Malays to hate the Chinese and Indians.
    4)admit that May 13 is a big mistake.
    5)start spending Money in the infrastructures of Malaysia like Singapore.
    6)stop sucking money from the general citizens.
    7)start investing in quality work force regardless of race.
    8)put those leaders with racist ideology to jail.
    9)start calling the country’s population Malaysian and not bumis or nonbumis or ketuanan something.
    10)once these are all ready, Malaysia is ready to advance.

  19. #19 by yhsiew on Sunday, 14 November 2010 - 6:46 am

    Lim Guan Eng can do a much better job than our Finance Minister.

  20. #20 by HJ Angus on Sunday, 14 November 2010 - 7:04 am

    11.Stop using religion to further political ambitions.
    12.Create a better balance of multi-religious judges in order to reduce religious bias in cases involving religious matters.
    13.Get the PAC plus the Auditor-General to submit monthly reports to Parliament on all cases involving adverse reports in Auditor-General’s Horror Report.
    14.Replace all racist instructors in BTN and other public institutions with a more balanced group.
    15.Reduce the budget on open houses and other opening ceremonies, festivities etc by 50%.

    I am sure most taxpayers can suggest a few more.
    What is quite alarming is that we can see so many cases of gross incompetence in public even without having access to what goes in behind closed doors.
    The RM2bil CIQ in Johor Baru is a case in point where bus passengers are subject to a failure in planning even 2 years after the complex opened.

  21. #21 by HJ Angus on Sunday, 14 November 2010 - 7:07 am

    sorry typo:

    what goes on behind closed doors

  22. #22 by born in Malaya on Sunday, 14 November 2010 - 9:39 am

    16) sack all the corrupted ministers and government servant.
    17)rehabilitate the entire police force.

  23. #23 by tak tahan on Sunday, 14 November 2010 - 8:04 pm

    Malaysia Seeks World Bank Help to Cut Spending, Trim Deficit

    Ayaa..easy lah LKS.Ask the world ban to seek cooperative from world banks to expose the digits of umno and cronies bank accounts.Return all the mony immediately and patch up the torn economy raked by them.Then put them in jail to rot.Kautim.

  24. #24 by ENDANGERED HORNBILL on Sunday, 14 November 2010 - 10:51 pm

    Next to US’s Quantitative Easing, this rubbish about getting World Bank’s help to do this little bit of consultation must take the price for stupidity.

    This is the perennial problem we have with our BN useless Cabinet. Nobody understands enough economics at that level.

  25. #25 by tuahpekkong on Sunday, 14 November 2010 - 11:11 pm

    There aren’t many things that we can learn from Indonesia but certainly fighting corruption and trimming the size of our bloated bureaucratic juggernaut are two areas where we can learn from them to cut down on our national expenditure.

    If we can reduce the size of our civil service to the ratio existing in Indonesia (1.79% of total population as opposed to 4.68% here), a total of about 800,000 civil servants need to be made redundant. I think a reduction of 600,000 is possible without severely jeopardizing the efficiency of the service. This means a saving of at least RM15 billion annually on emolument, perks, pension etc.

    The Indonesian Govt. has more political will to fight corruption than us. Ordinary Indonesians have come in force to demonstrate against corrupt practices but here in Malaysia, if we push too hard, some people will try to turn it into a racial issue to safeguard their interests. Billions of ringgit are lost each year to corruption.

    Another area where huge savings can be made is by having open tenders rather than negotiated tenders. Even with open tenders, close monitoring of projects is necessary to prevent cost overruns which can exceed 100% of original cost. The Government should engage capable and honest people to run GLCs. Singapore GLCs like SIA, Singapore Press Holdings and DBS bank turn in huge profits year after year but many of our GLCs are fraught with problems. Bank Bumiputra, Perwaja Steel Mills, MAS and even Proton are(were) epitomes of badly managed companies.

  26. #26 by waterfrontcoolie on Sunday, 14 November 2010 - 11:38 pm

    Well, there is a solution: just follow the fedral reserves of USA, maybe Bank Negara can print rm$60 billion for a start! Just when negotiating with some union leaders some tome ago; that was their conclusion: ” What is so difficilt, just get BN [ which one I leave it to you] tp print lah!!!

  27. #27 by dagen on Monday, 15 November 2010 - 9:09 am

    Oh boy. But I thought he-who-has-tower-power has prof danny quah of LSE to advise him. I mean, isnt prof quah good enough?

    So you see he-who-has-tower-power is just trying to fool all of us with yet another wayang – with “Look I am serious. See I am consulting a lot of people” show. Come on. Any economist in our local universities and any businessman in the country could in blink roll off their tongues 1/2 a dozen areas of our economy that are in urgent need of reform.

    Do we need the world bank to tell us? Action. That is what we need. Action towards change. But that is not what umnoputras want. Unfortunately for us, the voice of umnoputras represents the political will of he-who-has-tower-power (hmmm makes me wonder what the tower-power really is, another show?).

  28. #28 by dagen on Monday, 15 November 2010 - 9:22 am

    (Waterfrontcoolie said something about emulating the americans. Entry #26.)

    Errmmm, umno, if you doing that then l would like to order a billion ringgit (one billion will do). My swiss account no is 29485-6938-593837. Bank 90% in for me pls. And keep the balance 10% as your commission.

    Thank you so much. You are so beautiful. Muah. Muah. Muah.

  29. #29 by Godfather on Monday, 15 November 2010 - 10:47 am

    Was this Bloomberg article ever reported in the mainstream press ? If not, it tells you what the astute readers here know all along: the message is exclusively targetted at the 5 pct or so Malaysians who are sophisticated enough to make noise about the real ills of the country, and who may have a bearing on the ratings of the external debt of Bolehland.

    The remaining 95 pct of the population can continue to squat under the rambutan tree.

  30. #30 by TheWrathOfGrapes on Monday, 15 November 2010 - 11:01 am

    dagen :
    (Waterfrontcoolie said something about emulating the americans. Entry #26.)
    Errmmm, umno, if you doing that then l would like to order a billion ringgit (one billion will do). My swiss account no is 29485-6938-593837. Bank 90% in for me pls. And keep the balance 10% as your commission.
    Thank you so much. You are so beautiful. Muah. Muah. Muah.

    That RM1 billion will only buy you a packet of nasi lemak. I just bought a $100 billion Zimbabwean Dollar note on ebay.

  31. #31 by k1980 on Monday, 15 November 2010 - 11:40 am

    //My swiss account no is 29485-6938-593837. Bank 90% in for me pls. And keep the balance 10% as your commission.//

    Now finally you are talking like an African Awang Hitam

  32. #32 by waterfrontcoolie on Thursday, 18 November 2010 - 7:28 am

    If one were to follow the development of railway development in China and compare it with ours, then you will realize the differences in cost and the quality of the planned railway services. In spite of our rather flat land , and much slower speed our cost per km is so much higher. One must surely ask: Why? If Gamuda is given a free hand to plan then its plan and cost should be pitched against international standards. Of course, we are unlikely to see such open behaviour. At this rate, we can only sell palm oil to them, soon they will out-run us in every production department. Hence, we should not be surprised that the newly formed Malaysian Steel Association is already asking Najib to build them a flexible wall to protect their interests. When the world price of steel is high, let us export and when it is low,STOP importation! brilliant, isn’t it? Every Ar.. H… could have thought of this idea. But, it may sound so simple and laughable, but this IS the modus operandi of the Gomen. Malaysians have been suckers for so long that they have forgotten what is happening outside the country. Yes, someone indicated that he doesn’t mind having the Zimbabwe currency so long that he can get it in his bank account; rightly someone else pointed out, you could only buy a loaf of bread, i.e. if you can get bread then! We have leaders who are so blinded by quick gain that they just refused to give back even 30% of the stolen resources to the nation: this is what we have today. Now that they are unsure of the condition of the boat they are piloting, the best option is to plunder faster, at least knowing that the boat is sinking, they can buy a foreign ship to sail away. My real concern is for the younger generations, where would you be in the next 20 years? Going to Indonesia, Cambodia, or even Lao or Myanmar for jobs? You can’t go to Zimbabwe, by then our local well-connected leaders would have bought up all the useable land over there! and you can’t afford the hyper-inflation.

  33. #33 by TheWrathOfGrapes on Thursday, 18 November 2010 - 9:54 am

    waterfrontcoolie :
    If one were to follow the development of railway development in China and compare it with ours, then you will realize the differences in cost and the quality of the planned railway services. In spite of our rather flat land , and much slower speed our cost per km is so much higher. One must surely ask: Why?

    Well, for the trains to run smoothly in Malaysia, a lot of GREASE is required. ;)

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