Malaysia - A Legacy of Budget Deficits



RISING DEFICITS

 Extract of a Report from Bloomberg:

• A number of World Bank experts and veteran Malaysia watchers, such as Professor Hal Hill from the Australian National University, are becoming increasingly worried about the country's long-term future. Even the current Prime Minister, Najib Razak, admits that reform in the sensitive but critical area of affirmative action appears to have stalled.

• The primary problem is one of numbers. In a global policy environment rightly wary of ballooning budget deficits, the fact that the Malaysian government has been in DEFICIT EVERY YEAR since the introduction of the NEP in 1971 (except for a period from 1993 to 1998) is troubling. This is particularly the case since Kuala Lumpur spends much less on social services than do Western governments. The economic numbers look even more troubling when one considers that around 40 percent of the government's revenue comes from the state-owned oil and gas giant Petronas.

• Petronas is forced to pay a massive 60 percent to 70 percent of its profit in dividends each year—74 percent in 2010—just to sustain the government's spending programs. And second, the company's Malaysian-based reserves (which constitute the majority of Petronas' known reserves) are due to expire in around 15 years.
• The U.N.'s World Foreign Investment Report 2010 revealed that Malaysia's net FDI trailed such neighbors as Thailand, Vietnam, Singapore, Indonesia, and the Philippines. Indeed, in an embarrassing comedown for the former rising star, Cambodia, Myanmar, Brunei, Laos, and East Timor are the only countries in the region attracting less FDI than Malaysia. Worryingly, even domestic entrepreneurs are voting with their capital, as public investment exceeds private investment in the economy.
• More than 250,000 people left Malaysia from March 2008 to August 2009 (not including students studying abroad). There are no figures on the racial mix of those leaving, but overwhelming anecdotal evidence suggests that a high proportion of ethnic Chinese and Indians are in this group. Once again, not all exits can be blamed on affirmative action policies, but even Najib has admitted it is a priority to make the country more attractive so as to encourage thousands of the skilled (non-Malay) diaspora to return.
•  Formidable obstacles block Najib. Most significant is the ruling United Malays National Organization (UMNO) reliance on such an affirmative action political and social contract between the party and Malay elites to remain in power. Among countries that hold elections, UMNO has been in government longer than any other party in the world. It is not surprising that Najib has few supporters in his own cabinet to revise and wind back existing policies significantl.

 Read the Full Report HERE