Sunday, January 10, 2016

Not only Malaysia, Saudi too is reviewing financials

Too much cheap politics going around these days. The latest being accusations made on the budget adjustment for 2016 to imply bad economic management on the part of government.

During the 1999-2000 financial and political crisis, Tun Dr Mahathir administration too re-look at the budget. Anwar introduced severe austerity measures that affected business and economy. Subsequently, Mahathir had to "intervene" and the rest is history.

Anyway, that is water under the bridge. The point is that it is not only prudent but an honest government to readjust the budget in view of changing economic variables and should it be necessary, bite the bullet.

A government in-denial or opportunistic politics will blame others and talk of past glories to deceive the people from the hard realities of the present.

Budget adjustment is commonly done by any honest government. So it is not only sickening and cheap politics act to take potshot at the budget readjustment but it just shows plain lack of intelligence!

The Star Sunday Editorial explained:
The Star Says

Sunday, 10 January 2016

Tighten the belt, plug the leakages

Malaysia is not alone in re-looking at the budget for this year. Saudi Arabia, the world’s largest oil producer is reviewing its financials and also restructuring its economy.

Towards this end, Saudi Arabia is looking at listing Saudi Aramco, a move that would allow the government to monetise its oil reserves and increase transparency on the national oil company.

The listing of Saudi Aramco is estimated to create a company worth trillions, far more than Apple, which holds the coveted position as the most expensive company valued at US$543bil (RM2.4 trillion).

If Malaysia were to follow the Saudi example, we should be looking at listing Petronas. But that is not likely to be on the agenda of Prime Minister Datuk Seri Najib Tun Razak when he handles the revisions to Budget 2016.

Najib is a seasoned hand when dealing with budget revisions. A few months after he was appointed as Finance Minister in September 2008, the world was in a crisis due to the financial meltdown in the United States, threatening a shutdown of the global banking system. Soon, Najib announced some measures in a supplementary budget to stimulate the economy in 2009.

In January last year, Najib announced a revision to the budget when the price of Brent Crude fell 50% from a high of US$115 (RM504) per barrel. He took the knife to the Government’s operating expenditure. He deferred certain programmes such as the National Service, trimmed expenses on items such as air travel and the use of professional service firms.

A year later, Najib is in a similar situation as the price of oil is averaging US$33 (RM145) per barrel, which is way below the government estimates of US$48 (RM211) per barrel in Budget 2016.

At US$48 per barrel, revenue from oil was projected to make up 19.7% of total Federal Government revenue which amounts to RM225.67bil. Now that oil hovers at US$33 per barrel, the revenue is lower. How the Government makes up for the revenue shortfall would become apparent when the Prime Minister makes adjustments to Budget 2016 in the coming days.

At a glance, there aren’t many policy options left for Malaysia. It cannot increase its debt levels very much from the current level. It cannot spend its way out of a slowdown if Malaysia were to keep its target of a fiscal deficit of 3.1%.

An increase in debt levels and raising the fiscal deficit could cause the international rating agencies to downgrade Malaysia.

Collection from the Goods and Services Tax cannot be expanded very much from the target of RM39bil this year unless the tax rate of 6% is revised up. This is something that would not go down well with the people and the Government knows it.

An option left is to tighten the screws further on the operating and development expenditure that amounts to RM260.7bil for this year. This would require close scrutiny on government spending.

Few countries can pride themselves of a system where there is no leakage in handling of public funds.

The criteria in managing public funds would be to undertake measures to minimise the leakage.

For Malaysia, there are no clear estimates on the leakage. The closest indication on the matter was based on a statement by a top government official last month. He was reported to have stated each ministry was instructed to come up with ideas to reduce leakage in public expenditure. This move could save about 30% of the cost, he said.

In our current predicament, even a 10% saving of the RM260.7bil in expenditure would be enough to make up for the shortfall in oil revenue. But, this would require scrutiny in public handling of funds.
Consistent with this blogger's long term view to plug the wastage and holes in public spending. For a start, why do University organise seminar or convention at hotels when they have abundance of lecture halls, classrooms and living quarters?

To understand the Saudi austerity drive, read the CNBC report below:

Saudis unveil radical austerity program

Saudi Arabia on Monday unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatizations to rein in a yawning deficit caused by the prolonged period of low oil prices.

The Gulf kingdom has kept oil production at high levels in an attempt to force out higher-cost producers, such as shale, and retain its market share. But this year's deficit ballooned to 367 billion Saudi riyals ($97.9 billion,) or 15 per cent of gross domestic product, as oil revenues fell 23 per cent to Sr444.5 billion.

Seeking to ward off future fiscal crises, the ministry of finance confirmed wide-ranging economic reforms, including plans to "privatize a range of sectors and economic activities".

Riyadh would revise energy, water and electricity prices "gradually over the next five years" to optimize efficiency while minimizing "negative effects on low and mid-income citizens and the competitiveness of the business sector," it added.

The first reforms will be effective from Tuesday, including an increase in gasoline prices, a rise in electricity tariffs for the wealthiest consumers, a modest increase in water costs for all, and changes to all energy prices for industrial users.

An oil refinery in Saudi Arabia.
Danita Delimont | Getty Images An oil refinery in Saudi Arabia.

The government will also seek to implement a plan for the introduction of a sales tax across the six Arab Gulf states.

The success or failure of the reforms will help define the legacy of King Salman bin Abdulaziz al-Saud and his influential son, Deputy Crown Prince Mohammed bin Salman, who is overseeing the program.
Investors experienced plenty of shocks during 2015, the FT looks at the highs and lows including currencies, emerging markets, bonds, equities and commodities

The kingdom's austerity and reform program, a reaction to the past decade of profligate spending, has raised alarm among parts of the country's business community, who are already reeling from this year's cuts that have triggered widespread delays in government payments.

Radical reforms to the social contract between Saudi citizens and the ruling al-Saud family also threaten discord at a time when Islamist extremist groups such as Isis have threatened the country.

Real gross domestic product this year is expected to rise by 3.35 percent, with the private sector growing at 3.74 percent.

"We see real GDP growth decelerating sharply in 2016, albeit remaining positive," said Monica Malik, chief economist with Abu Dhabi Commercial Bank. "Non-oil GDP is forecast to moderate with the lower government spending feeding into the wider economy."

The government's austerity measures have been accompanied by extra spending items, such as the Saudi-led war in Yemen and Sr88 billion in bonus payments for civil servants when King Salman ascended to the throne in January.

The 2016 budget envisions spending Sr840 billion in 2016, compared to the Sr975bn that is forecast to have been spent this year and Sr1.14tn in 2014. Actual spending has outstripped projections by as much as a quarter for the past decade, but the government is trying to instil greater fiscal discipline.

Revenues in 2016 are forecast at Sr514bn, down from Sr608bn this year. The budget projects a deficit of Sr326bn in 2016.
There is also the video commentary, see it here.
The uproar from the rise in prices due to implementation of GST and withdrawal of subsidy such as fuel can only be naturally expected. It's happening in Saudi too.

Quoting from the website, John Sfakianakis, a Riyadh-based economist who is a former government adviser said, below:
"Over the next year or so, you will see the introduction of a sales tax — a VAT tax — eventually some form of income tax."

Even the price of tobacco and soft drinks could rise through new taxes.

"The era of plenty has come to an end. This is it. The party is over," he says about a government that did not adequately address the challenge to diversify an oil-based economy as long as prices were high. Now, the government is signaling that "oil will be in the $30-$40 range for some time."

This "end of an era" moment in Saudi Arabia points to a new social experiment across the Gulf, as oil-rich monarchies grapple with lower state revenues.
If that puts those cheap politic propagandist on the defense, expect more cheap politics as they come with a counter attack with a cheap reply.

There will be those saying if Saudi is on financial austerity, how could there be Saudi prince or princes donating RM2.6 billion to PM Dato Najib. So it must be siphoned from 1MDB. To debunk, just say that allegedly happened in 2013 and this is 2016. Saudi were buying US T-Bills then and not selling them now. 

Co-incidently or by design, there is a looming war between Saudi and Iran [read Huttington Post here]. Pray it will not.


Anonymous said...

You know a hallmark of a good writer is when the writer manages to his/her point's across. What are you trying to say? You trying to compare saudi's revision with najib's? Come on bro im not even gonna try. You have to compare apples and apples and oranges with oranges.

Analysts have stated from last year that prices would be in the 30+ range and some radicals even went further saying that it could go below 30 to mid 20's a barrell. Then what does our chicken shit do? He projects it to be 48 and went from there.

So tell me, who's the idiot? And btw if what you wrote is to compare malaysia with arab saudi, come on man. That country is a failed state. Let's raise the bar, can we?

drMpower said...

University do conferences at hotels and exotic places because conferences bring revenue. Dont worry about that. Its the extravagance spending by ministries and ministers as well those little napoleons you should worry about

Infact mahathir was some 7-8 years ahead when he said government should look at itself first before asking the public to tighten the belt. When the public or the opposition highlighted where the private jets were, the public riled because the government didnt walk the talk.

Cheap points like these are valid to be honest. The oppositions know this duck in the water. For example the credit ready almost 1billion was made ready for a certain problematic company. Public questioned that and they were right. How come during economic difficulties and full of uncertainties, a certain company was given standby credit that much?

Kata duit takdak, but how u do things like money printed on tree?

And having ahmad maslan on board is very bad politically and without him as minister dont really harm the party and the government at all. Find another person for party post as well. Three million members dont tell us there is none better than him.

U know the story well. We all knew that as well, that under mahathir there was a council that meet weekly. It was attended by the best minds in economics and most, if not all, were malaysians. They kept the PM informed on daily basis and with such person as the PM you just knew he will be thinking of us first. U just knew we will be allright under his command.

I brought it up because u were trying to tell that mahathir also did revisions and just like najib. Well. Najib is no mahathir. Mahathir saved us, countless times over.

Anonymous said...

Even in china, chinese workers are facing home ownership problem.

Just like malaysia but at least federal govt is working to provide affordable homes thru spnb, 1prima etc

Anonymous said...

I have to agree with "Too much cheap politics going around these days." Well said.

But to say, " The latest being accusations made on the budget adjustment for 2016 to imply bad economic management on the part of the government." - I beg to differ. Haven't we all suffered enough due to the current government's failure in managing the country? Declaring on the budget adjustment with no solid improvements and action taken is definitely what we loathe to hear. Enough said, but nothing is done.

At least in 1999-2000, the "drastic action" taken by Tun M had saved the country from plunging deeper, and rakyat in general did not suffer as much as we do now. What has the current government done so far? Please fill us in with facts.

I think defending the country is good, but to continue defending such "people" who run the country now is really something that not only you but all of us should seriously think about.


Anonymous said...

Anon 7:45pm agreed and spot on. Or is it purposely input at 48USD to show how smart and brilliant they address the shortfall due to adjustment. Else your last paragraph spot on again. I would say furtherest Saudi Arabia have no economic agenda as they will used their cash treasury with no budget conclusion. They have trillion in reserved.

Anonymous said...

Malaysia aming top with highest growth and only 10% probability of recession.

This jew must have been paid by Madey to lull Najib

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