Budget 2013: Becoming the next "Greece"

Consistently persistent fiscal deficit is the best description I have for long time ruling coalition government. Fiscal deficit happens when a government's total expenditures exceed the revenue that it has collected (this excludes money from borrowings). An accumulation of yearly fiscal deficits is our national debt. Fiscal deficit is not always a bad thing. However, persistent deficits even during times of economic growth shows a major lack in spending discipline. When the economy is doing well, a balanced budget strives for a surplus so in times of recession a government can meet its debt obligations. This is the exact opposite in Malaysia, the persistent fiscal deficits are adding more and more to our total national debt further burdening future generations with ballooning national debt.

Practically when drafting a national budget, the most likely number the government looks at is the country's economic growth via Gross Domestic Product (GDP) which is how much recognized goods and services a country can produce in a given year. When GDP grows, revenue is expected to go as more tax is collected and other revenues go up as well. There is an increasing risk of a double dip global recession and slower economic growth projected for 2013/2014 due to sapping demand from Eurozone, India and China. Given the path we are currently on (as you will see below later), higher deficits will happen. Worse come if we do enter into a recession, we will definitely see record level deficits and national debt levels. By the time, as the government cannot fulfill it's debt obligations through any mathematically possible resolution, we will be the "Greece of Asia".

It is worth to highlight that the country has been running fiscal deficits for the last 14 years since the financial crisis of 1999 and is expected to continue unless we cut unnecessary spending. Where do we spend our money then?

Operating expenditure has now hit a high of 80% of our national budget allocation leaving a highly disproportionate % left for development spending. The reason of increase spending under the "operating" tab can be attributed to reckless handouts/promises of bonuses. What are the implications of such irresponsible spending?

The country is built up around amassing more and more debts. The country's national debt (domestic debt + foreign debt) is just short of its self-imposed ceiling of 55%. There is no political will to dismantle our humongous bureaucracy, a stage of over-governance. Yet we have someone in parliament playing the role of "Santa Claus" year after year. Now you will ask me, who funds the government then? We can't just print money like the United States so the Malaysian government funds these yearly deficits by borrowing, welcome to Malaysian Govt Securities (MGS). People often refer them as Malaysian bonds.

As much as RM120 billion is official invested in MGS by the EPF, this comes from their latest 2011 Annual Report. EPF also lends money under loans/bonds to others. It is surprising to see that the category "Others" is deemed as "SOCSO, nominee and trustee companies, co-operative societies, foreign holders and other entities" from our National Economic report. EPF on loans/bonds == Others? Let's assume yes, and give a 10% error tolerance which makes up to 50% of our national debt is owed to the EPF!! The investment size of EPF is RM469 billion as of year 2011. Effectively this means our government has already spent ~50% of all your savings in the EPF. If say I take just the MGS figures, it's still a staggering 25.5%!. One very big egg in a basket. 

Let me paint a bleaker picture. The EU central bank back in 2011 agreed to extend financial aid to the Govt of Greece on the condition they adopt massive austerity measures and that the lenders take a haircut of 50% of all outstanding loans. After all, they continually lent to a borrower that absolutely shows NO commitment whatsoever to cut expenses in order to service their debts. Just imagine if the EPF was in the same situation and asked to take a 50% haircut of their debts from the Malaysian Govt. You will only have 70% of your retirement money back (factoring the exposure % of EPF as EPF invests 30% of money into equities as well)!!!

It's no use digging deeper or reading line by line of Budget 2013 transcripts. It the same thing all over again for the past 14 years. How much public money has been lost through corruption? How much of it has been used to subsidise big corporations instead of the people? How much of it has been used to pay for ‘commission’ for big business deals involving the government? We may never know how much, but we do know that it is one hell of an amount, it's now well over RM500 billion! Malaysia is so fucking rich to this extent that the C4 has not exploded. But how much longer can we take this? There's a timer to every bomb.

Data sources: 
You can download my spreadsheet from the link: https://docs.google.com/open?id=0ByA0Wuyck1LfbDhoUzJJZ25VRTg
It compiled from KWSP's annual report, malaysia economic figures by MoF, BNM and auditor's general report. 

Other useful reading:

Search for "Economic and social effects of austerity measures" on Greece: http://en.wikipedia.org/wiki/Greek_government_debt_crisis
Malaysian budget 2013: http://www.kpmg.com/my/en/issuesandinsights/articlespublications/pages/2012budgethighlights.aspx