Malaysia seeks $4.8 bn to cover overspending
Play
Move fuels concerns at ability to reduce national debt already at critical levels
In a surprise move, the Malaysian government asked for an extra 14.1 billion ringgit (US$4.4 billion/Bt137.7 billion) to cover unplanned overspending this year, raising concerns over its ability to pare down its national debt, currently at critical levels.
The amount is expected to be used to pay civil servants and for operating expenses incurred during the elections.
If passed, the treasury and the education and health ministries will receive the bulk of the money.
Deputy Finance Minister Ahmad Maslan on Monday tabled a supplementary bill for the 14.1 billion ringgit, which works out to about 5.6 per cent of the 251.6-billion-ringgit budget approved for this year.
Supplementary bills are typically used to cover unforeseen expenses such as for disaster relief and combating viral outbreaks.
In July, the government received an additional 13 billion ringgit to cover gaps in its 2012 budget.
Economists say that the latest request is worrying at a time when the government is already under severe pressure to reduce its national debt, which is approaching a self-imposed limit of 55 per cent of gross domestic product (GDP).
“This bill is fiscally not prudent and could rattle the market if a deficit of 4 per cent or less is not met this year,” warned Yeah Kim Leng, chief economist at RAM ratings company.
Prime Minister Najib Tun Razak has pledged to keep the budget deficit to 4 per cent this year, noting that it was already down to 4.5 per cent last year from 6.7 per cent in 2009.
Yeah said the additional fund request could be partly due to unbudgeted spending, including pre-election handouts like the 1Malaysia People’s Assistance Fund, which gave 500 ringgit each to some 4.2 million households with income of less than 3,000 ringgit a month.
Economists said this could well lead to further downgrades like that given by global rating company Fitch in July, when it lowered Malaysia’s credit rating outlook from stable to negative, citing weak steps to rein in soaring public debt.
The government budget deficit widened to 4.7 per cent of GDP last year from 3.8 per cent in 2011, Fitch reported, citing a 19 per cent rise in spending on wages and handouts in the two years leading up to the general election this May.
Monday’s request calls that pledge into question, said Ong Kian Ming, an opposition MP.
“It is a worrying trend and may breach the government promise to reduce the budget deficit to 4 per cent of GDP,” he said on Monday.
Najib said that the government will address fiscal concerns when it tables next year’s budget on October 25, which is expected to include new ways of raising government revenue, including the long-delayed goods and services tax.
The government recently cut fuel subsidies, raising the price of subsidised petrol and diesel by 0.20 ringgit per litre on September 3.
That move cut its yearly subsidy bill by about 3.3 billion ringgit.
In recent interviews, Najib has assured investors and the public that his government will be able to fix the deficit, which goes back to the 1997 Asian financial crisis.
He cited better fundamentals including 316 billion ringgit in foreign reserves compared to the 95 billion ringgit the country relied on in 1997.
