A pandemic or political Budget?

Much was expected of Malaysia’s 2021 Budget as it would outline the government’s strategies to tackle an unprecedented health pandemic that has severely damaged the economy. And, this budget was to be tabled in the midst of a serious political crisis, with debates raging whether Perikatan Nasional had sufficient members of parliament to continue governing the country.

There is, however, little in this Budget, of a well-charted agenda to confront the health and economic crises. In fact, the way this budget has been structured and how the incentives are to be delivered appear disconcerting.

Terence Gomez is Professor of Political Economy at the Faculty of Economics & Administration, University of Malaya.

Key concerns

Health matters had to be the budget’s central focus, so, rather surprisingly, only an additional RM1 billion, compared to the 2020 budget, was assigned to deal with the COVID crisis. Much of this funding is for the procurement of test kits as well as lab and personal protective equipment, not for innovation to create methods to deal with the pandemic.

In the economy, since 98% of Malaysian companies are small- and medium-scale enterprises (SMEs), much support was expected to be channelled to them. SMEs need to be shored up to continue to function, if bankruptcies are to be curbed to stem the growing rate of unemployment.

The budget’s theme is ‘Resilient as One, Together we Triumph’, to stress the nation’s need to unite to deal with this crisis. However, of concern is a distinctively ethnicized narrative about the delivery of the incentives.

Using GLCs

When finance minister Tengku Zafrul Abdul Aziz tabled the budget, he repeatedly stressed that government-linked companies (GLCs) would be deployed to deliver the budget’s incentives. These GLCs include government-linked investment companies (GLICs), specifically the Employees Provident Fund (EPF), development financial institutions (DFIs) like Bank Pembangunan, Agrobank and SME Bank, as well as statutory bodies such as MARA and a variety of foundations.

When the pandemic broke early this year and the then newly-forged Perikatan government announced its first Stimulus Package, a similar theme ran through that document. Tengku Zafrul was then quite explicit that the ‘government ecosystem’ would be utilized to handle the problems emerging from the economic lockdown. The finance minister also, correctly, noted that the government could not depend on private firms, in lockdown mode, to help deal with the crisis. The government had to intervene actively in the economy to keep it afloat.

GLCs involved in utilities, telecommunications and the financial sector were called on to help people and companies, which they did. A similar trend is seen in this budget. For example, telecommunication firms will provide RM1.5 billion worth of data for internet connectivity to the Bottom 40 (B40). GLCs will offer 500,000 jobs, primarily contract-based short-term employment, to tackle the escalating unemployment rate. 820,000 Malaysian are now jobless. RM95 million will be directed to fund microcredit schemes offered by Agrobank, MARA and Tekun. GLCs are to contribute RM150 million to a fund managed by the Yayasan Hasanah for the purchase of laptops for 150,000 students in 500 schools. This foundation is controlled by a GLIC, Khazanah Nasional. The Yayasan Pembangunan Ekonomi Islam Malaysia will receive RM50 million.

While these are commendable initiatives, a deeply worrying issue is that when Perikatan took power, politicians in this coalition were liberally appointed as directors of GLCs, clearly to secure support to prop up a government with a slim majority in parliament. In spite of widespread criticism of these directorial appointments, checks and balances were not instituted to curb abuse of these GLCs.

Ethnic group targeted

When the finance minister spoke of targeting bumiputras for aid during his budget speech, he justified this on the grounds that this was necessary to ensure equity in wealth distribution between ethnic groups. This issue of equitable inter-ethnic wealth distribution was similarly stressed when the previous Pakatan Harapan government presented its 10-year Shared Prosperity Vision (SPV). The SPV was primarily conceived by a think-tank associated with Bersatu, led by current Prime Minister Muhyiddin Yassin, while the Ministry of Economic Affairs (MEA) was responsible for announcing it. The MEA, now dismantled, was led by Azmin Ali, now Minister for International Trade & Industry (MITI).

Interestingly, when introducing the SPV, the government acknowledged that corporate equity ownership by all Malaysians, regardless of ethnicity, had been falling. The SPV provided data, though only until 2015, that indicated that bumiputra equity ownership had fallen from a high 23.4% in 2011 to 16.2%. Non-bumiputra equity ownership was similarly down, to 30.7%, lower in fact than what it was in 1970 when affirmative action was introduced to redistribute wealth equitably between ethnic groups. Clearly, a review of policy planning based on ethnicity is long overdue, particularly during a crisis when all Malaysians are being called on to aid an ailing economy.

In this budget, the government is explicit about the volume of funds allotted to specific ethnic groups. Bumiputras are to be allocated RM11.1 billion, principally to encourage their participation in the economy. Of this figure, RM2.5 billion is targeted for G1 to G4 contractors through small-scale government projects. MARA will provide RM50 million to a fund also meant for bumiputra contractors. RM300 million was apportioned to the Lestari Bumiputra scheme to develop SMEs. Financial assistance, amounting to RM2 billion, for bumiputra-owned SMEs will be provided through the Sykt Jaminan Pembiayaan Perniagaan.

Meanwhile, Tekun is to channel RM20 million to ethnic Indians in business, with RM5 million for firms owned by other ethnic groups. The government’s Indian Transformation Unit will be allotted RM100 million. For the ethnic Chinese, RM100 million is to be channelled to those in business, while RM17 million will be used to repair education facilities and develop the new villages.

Budget planning along these lines is hardly inclusive in nature, when SMEs, regardless who owns them, require support. Indeed, business-based affirmative action hardly inspires domestic investor confidence, a point cogently noted by the government led by Najib Razak in 2009 when the economy was deeply undermined following the 2008 global financial crisis.

Independent oversight

The suggestion of a strong focus on politics in the budget is well indicated in the funds allocated for rural development. There is, undoubtedly, considerable need to improve rural infrastructure. However, it merits noting that the ministry of rural development, since it was first formed by former Prime Minister Tun Abdul Razak, had been led by a senior Umno politician. Umno musters significant support from rural constituencies. This ministry is presently helmed by Bersatu’s Abdul Latiff Ahmad, the member of parliament for Mersing, in Muhyiddin’s home state of Johor. RM10.2 billion was allotted for rural development, with RM3.53 billion for management and RM6.75 for infrastructure and human development. One major GLC under this ministry, MARA, will receive RM2 billion to sponsor programs that is to benefit 50,000 students.

Since this ministry has been replete with serious allegations of corruption, given the current crisis, the government cannot afford to waste funds or channel them to companies and projects that have a history of poor productive outcomes. Moreover, the budget does not propose an independent institutional oversight mechanism to ensure these GLCs are not deployed to serve political interests. Without such oversight, budget allocations through a government ecosystem that the finance minister is heavily dependent on, will not help Malaysia cope with this economic crisis.

By : Terence Gomez ( University of Malaya) – SIN CHEW DAILY

*This is the personal opinion of the writer and does not necessarily represent the views of The Stringer.

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