Final Warning: Malaysia may be bankrupt sooner than 2019

HORNBILL UNLEASHED
Maclean Patrick

Alarm bells should be sounding by now, yet the nation’s leaders seem to be adamant on keeping things sounding rosy and well. The Auditor-General’s Report for 2010 has shown how far down the barrel, Malaysia has gone.

It must be noted that when Malaysia was formed in 1963, the British left her with a solid administrative template. Yet, after more than 50 years of rule by Barisan Nasional, the template has not been improved on. In fact, it has gone to the dogs; replaced instead by a form of government that encourages leakages and corruption of all forms.


Malaysia has a population of 28 million and a civil service of around 1.3 million. Out of the 28 million, only one percent are paying income tax. This clearly shows that 99% are either below that income tax bracket or merely earning too little to need to pay taxes. With inflation and the prices of goods continuing to rise, expect even fewer people to pay income tax in the near future.

Incredulous optimism

Yet, the Najib administration’s goal for 2012 is to grant perks to the civil service and give hand-outs to non-serving members of the society in the incredulous optimism that this will improve productivity and raise efficiency and so forth. There is a lot of hope, but as always, no real mechanism to bring about results. The AG’s report clearly shows that though there were improvements from last year, the large number of detected faults still means the government has a long way to go in order to be a world-class administration.

For comparison, Taiwan has a population of 24 million and a civil service of just 400,000. Yet, Taiwan has continued to emerge as a major player on the global economic scene. Not bad for a small island that has so few natural resources and at one time was chided for producing rip-offs of Japanese electronic goods. Obviously, a clean and efficient government allows for a growing nation and a growing nation shows up, regardless of its size.

But not only is it confirmed that the Malaysian economy and system is riddled with rampant corruption, widespread inefficiency and general incompetence, the country has reached near to the end of the line. Bankruptcy is visible and to the extent that a time frame can be drawn. Minister in the Prime Minister’s Department Idris Jala, who shocked the nation last year by warning of bankruptcy by 2019 if the government continues with its current spending pattern, reiterated his view on Tuesday.

In announcing the latest investment updates for the government’s economic transformation programme (ETP), Idris had this to say, “If our economy grows less than four per cent… and we don’t cut our operating expenditure, if we borrow at 12.5 per cent, if our annual debt rises to 12.5 per cent and our revenue does not grow, then it will happen.”

Bankruptcy happens when one overspends or makes a poor investment

Let us examine Idris’ statement. Exactly, what will happen and how will it happen? The answers are, Malaysia will go bankrupt and it may come sooner than 2019 unless the leaders get their act together. The awful signs of such a situation are when the country starts to be late in its repayment of debt or servicing of interest.

This happens because there is insufficient cash-flow. Revenue from income and corporate tax plus returns from investment in all productive sectors are insufficient to cover the outflows. How come? Because the past BN government frittered away the borrowings on overpriced, unproductive or loss-making projects and ventures!

According to the AG’s Report, Malaysia’s national debt rose by 12.3 per cent to over RM407 billion last year, and although the economy grew by 7.2 per cent in 2010, last year’s fiscal deficit maintained public debt at over 50 per cent of GDP for the second year running. The government owed 53.1 per cent of GDP, slightly down from 53.7 per cent last year.

This does not augur well for Malaysians who may now have to contend with additional taxes like the GST, just to raise government revenue in order to cover its operating expenditures such as subsidies. Yet even as the government grapples with the idea of reducing subsidies and implementing the GST, it must also clean up its own act.