Falling subsidies and growing unrest: Where is Malaysia’s money?

Opposition voices say the 2017 Budget is clear evidence of the holes in the country’s economic outlook and loudly question the impact of the 1MDB money-laundering scandal on the current and future economic situation. Prime Minister Najib has said little – that may prove an unwise decision.

By Holly Reeves

“Budget 2017 proves the government was running out of cash,” says Malaysian opposition politician Tony Pua, adding “The situation will only deteriorate further, making 2017 one of the worst years for the people.”

The reason? Drops in petroleum revenues, excessive borrowing, corruption, and waste say Prime Minister Najib’s critics. Not that he is hanging around to listen to them; he only attended parliament for an hour of the session which pushed Malaysia’s 2017 budget towards the policy stage. He left well before the end.

As opposing sides traded insults in the heated meeting, Najib sat back; leaving Second Finance Minister II Datuk Johari Abdul Ghani to handle the difficult questions. These were questions like just how the billions of dollars poured into the 1Malaysia Development Bhd (1MDB) – which drowned in its own pool of corruption allegations – figured in an economic landscape which pitched only moderate growth.

Member Gobind Singh Deo challenged the Prime Minister on just that point to no avail. Where did the money go, he asked, and what was the status of the investigation into the fate of huge amounts of public financing? No reply, from Najib. Instead, Johari took the floor, saying the investigation was underway but he was,“here to answer questions on the Budget but not on the issue of police investigations which I am not privy to the details.”

A lack of cooperation

Ask the Swiss and more information is forthcoming. Michael Lauber, the country’s attorney-general, recently revealed he had “had the response that the Malaysian authorities will not reply to our request [for details regarding large money flows and transfers between persons under charge of money laundering]” adding, “They just said that under their legal framework, they can’t reply.”

But the proceedings are far from over, says the Swiss official, because “if for whatever reason there is no cooperation], we will find other ways, and we have great co-operation with several other jurisdictions.” Perhaps Mr. Najib should sit as comfortably as possible in that seat in parliament while he still can; trouble is forever brewing for him in the current political climate.

Of course, Johari says the two issues (of this year’s budget and 1MDB) are completely unconnected. After all, the investment fund is managed by its board. But this conveniently forgets the bonds underwritten by the government. Pua spoke again on the topic, saying “If 1MDB fails to repay its loans and obligations, the Finance Ministry will have to foot the bill.” According to his figures that would raise the budget deficit to 5.4% of GDP, well over its 3% target. He and others believe the issue can just no longer be ignored.

The difficult year ahead

Meanwhile, the measures introduced in this budget are not the vote-gatherers that observers had expected ahead of a general election in 2018, or even an early vote next year. In his presentation of the proposals back in October Najib said, “We are now on the right track, as we have and are taking firm, bold and right decisions despite the measures being unpopular.” The growing mood of unrest, and street protest anger, building in his country suggest he may have underestimated the faith his people have in his government and their policies.

As one example, the crash in the price of crude oil means that subsidies of basic goods like cooking oil have fallen. This is because the government can no longer rely on petroleum revenues as an economic cushion to fund this type of populist policy. This has resulted in the slashing of the total allocation for these important subsidies down from RM 26.1 billion (USD 6.1 billion) in 2016 to only RM 10 billion (USD 2.3 billion) next year. As such, the cost of living for many average Malaysians will get worse long before the steps to prop up the economy, such as tax relief and housing, are fully felt.

Looking at the wider numbers, the budget allocation is actually up by 3.4%, to RM 260.8 billion (USD 59.95) but this has only been made possible by the revenue created by the much-hated Goods and Services Tax (GST) announced in Budget 2015. So far this levy on the everyday spending of the man on the street has raised RM 30 billion (USD 6.9 billion) and, to the relief of most, will not be increased in the coming cycle.

But this should be little comfort for the rakyat, or the government itself. Behind every door Najib opens lies the spectre of 1MDB, dragging his policies and reputation back through the mud of money laundering and suspicious donations. And yet his policy of silence continues, speaking frankly neither to the people nor the opposition, on just what happened. But the people want answers, and their questions are growing louder – shouting in the parliament is giving way to shouting on the streets. The Prime Minister may continue to hold his tongue, but that is no guarantee he will hold his position.