Penang financial management: An unsustainable bloat?
LSS Report
Expanding on the analysis of Mr Calvin Sankaran from his article here. Additional graphs. tables and commentary in blue italics are mine.
When Pakatan Rakyat (PR) wrested control of five states in the 2008 General Election, it provided a perfect platform for the Opposition coalition to showcase its ability to govern. Many Malaysians were eager to see how PR would perform, especially in Penang and Selangor, two of the most economically advanced states in the country.
Within a few years, reports of outstanding financial management in Penang by the DAP-led state government started to emerge. Media organisations, both local and foreign, reported that under new Chief Minister Lim Guan Eng, the PR government had cleaned up the books, eliminated debts and corruption, boosted revenues and increased state coffers by several folds.
Speaking at the 7th Annual Corporate Governance Summit, Lim revealed the secret behind the success – the state government’s Competency, Accountability and Transparency (CAT) principles. He proudly pointed out that since PR took over the state, it had recorded budget surpluses every year.
The PR state government, according to Lim, had transformed Penang into a shining model of good governance and one far superior to other Barisan Nasional-led state and Federal governments.
So how did Penang manage to achieve stellar results within such a short period of time? What are the important lessons that can be learnt from Penang in managing public finances? This analysis attempts to answer all these questions by studying Penang’s financial performance from the year 2007 to 2014 based on the state’s financial statements and the Auditor-General’s audit reports.
In particular, we will examine three key elements of the state’s financial statement – Revenue, Expenditure and Consolidated Revenue Account. We will use the year 2007 as the baseline for comparison since it was the last full year of administration by the previous BN state government. For the current state government, 2014 data is used as the benchmark as it is the latest fully-audited financial statement available at this point of time.
Revenue
For the year 2007, the state’s revenue stood at RM 295.9 million and by 2014, it rocketed to an astounding RM 799.7 million. This translates to an increase of RM 503.8 million over seven years and a Compound Annual Growth Rate (CAGR) of 15.26%. This is indeed an impressive achievement by any standard.
Let’s dive deeper into the state’s financial statements to understand how Lim was able to engineer such an outstanding feat of financial management.
When we analyse the revenue, two particular items immediately stand out – land sales and quit rent. It quickly becomes apparent from these numbers that the state government has been selling public lands to private developers at unprecedented rates over the last several years. These massive land sales alone contributed hundreds of millions of ringgit to the state annually.
For example, for the years 2012, 2013 and 2014, land sales brought in RM206.1 million, RM210.8 million and RM300.2 million respectively.
