2015 Budget – A Critique (2)
by Economic Observer
17th October 2014
There exists a long held convention for the Annual Budget Speech to serve as a vehicle for reporting to the nation recent economic performance along with a candid account presenting near term prospects.
Sadly the Minister has chosen to ignore tradition.
In a speech of almost 30 pages, hardly a page and a half are devoted to a discussion of recent developments or the prospects for the year ahead. What little is said about recent performance consists of broad generalizations.
Growth merits a few lines; little is said about price developments, private consumption which is a measure of the people’s wellbeing.
Cynically much is made of the performance of the stock market but not a word is said about the growth in private debt or about the leakages that the economy has suffered through massive capital flight.
The reference to investment trends is based on data relating to approvals rather than actual investments.
The Prime Minister stated: “Total investment reached RM219 billion and more than 437,000 high-paying job opportunities created.”
No details are given. This remarkable statement gives the impression that these were achievements recorded in the past year — the reality is that these numbers are cumulative totals from the year 2009 to the present.
It is most incredible that the Prime Minister has dealt with the issue of prospects for the year ahead in a single sentence: “For 2015, economic growth is expected to remain strong between 5% and 6% while the fiscal deficit is projected to further decline to 3% of GDP.”
No details are provided and neither does he elaborate on other key aspects of how the economy is expected to perform.
For instance, not a word is said about the outlook for inflation, the likely pattern of private investment including the prospects for FDI inflows and how the Ringgit is likely to perform.
There is a need for transparency and a candid presentation.
These stark and glaring omissions provide little confidence that the nation’s economy is being managed competently. It is legitimate to ask: “Has the economy been placed on autopilot?”
The Economic Report, released simultaneously with the delivery of the Budget, in Table 2.5 shows GDP estimates and forecasts for the year ahead.
A close examination of the Table reveals that Private Final Consumption is projected to grow at 5.6 percent in 2015; this rate is the slowest in relation to the growth rate recorded since 2011.
What this implies is that households will feel the impact of the GST and subsidy reductions despite the increased transfers under BR1M other handouts.
The same Table reveals that Private investment will also grow at a slower pace, (10.7%) as against rates of between 12 and 22 percent in recent years.
The slowdown in the rate of growth of private sector activity will be countered partly by stepped up public sector activity.
What these trends indicate is that the private sector as a whole, despite the many incentives provided, is not fully responsive. This in turn appears to be indicative of a loss of confidence in government policies.
The Prime Minister’s assertion that the Malaysian economy is likely to record growth in the order of 5 and 6 percent may be soothing but it is at variance with the forecasts for the Malaysian economy issued by the IMF in its latest edition of the World Economic Outlook.
The IMF expects the Malaysian economy to grow at lower rates of 5.9 percent and 5.2 percent in 2014 and 2015 respectively.
The World Economic Report also touches on the issue of inflation. It projects inflation to be at 2.9 percent in the current year and to record a steep rise to 4.1 percent in 2015. (See Table 2.3 WEO October 2014).
The Prime Minister’s bland statement that the fiscal deficit is projected to decline to 3 percent of GDP in 2015 is less than credible in view of past pronouncements.
These assertions in previous Budget speeches about bringing the deficit under control have proven to be false.
The reality is that deficits reported at the time the Budget is presented are sharply increased via supplementary expenditure bills presented in the early months of the year. Thus, the figure of 3 percent is unlikely to be met.
In this context, the IMF’s WEO notes: “With respect to fiscal policy, although policy space varies across the region and automatic stabilizers should be allowed to operate, fiscal consolidation is desirable across most of Asia and the Pacific. It is a priority where debt levels are relatively higher (Japan) or where there are contingent fiscal liabilities (Malaysia).”
The size of these contingent liabilities remains large but is a closely guarded secret.
These and other off budget borrowings by the public sector have clearly grown.
The self-imposed debt ceiling in all likelihood has been breached.
The Speech is totally silent in this regard.
(to be continued)
