Concerns abound over Rafizi’s over-simplistic antidote to heal Malaysia’s economic woes

Dr Raman Letchumanan, Focus Malaysia

THIS was essentially what Economy Minister Rafizi Ramli responded when a participant asked him about the worrying levels of Malaysia’s national debt at the “Parliament Lecture Series 1.0: Resetting the Malaysian Economy” on Jan 27.

The participant asked (quoted in verbatim), “We have a debt of RM1,500 bil (RM1.5 tril) and we are happy in this country. We have everything going in this country. The egg price is going up, no money also we are happy. Pakistan and Sri Lanka no electricity, no water, no gas, no nothing. What’s happening, is it a magic we are going through. I hope YB, my hero, can explain from the economic point of view”.

The happy and smiling Rafizi responded immediately (quoted in verbatim), “Good question. Very clear. You see we have to differentiate, just as we have done in the company between the so-called balance sheet, and profit and loss, and the cash flow.

“You see, the debt RM1.5 tril as a size of our economy is quite comparable. Our problem is that with only 11% tax revenue every year, basically our cash flow is in trouble, if we don’t manage well the cash flow problem leads to default … Sri Lanka we will be, sometime in the future”.

The full conversation can be heard here.

Private vs public sector accounting

As a fellow professional accountant, I am appalled that Rafizi would quote the private sector financial statements in comparison with our government’s financial management. As I will explain below, our government operates totally on a “cash flow” basis. The government does not prepare a balance-sheet nor income-expenditure accounts.

It operates like an ATM (automated teller machine). The government just opens an account (the consolidated fund) and by statute, forces taxpayers to bank their money into the account. But the ATM card is held by the Executive which withdraws and spends money as they like – subject to parliament approval though not during an emergency. When the government runs short of money, it raises more taxes from the people.

In private sector accounting, the cash-flow statement is very important to ensure short-term viability to keep their operations going. That’s why during recession or pandemic, many viable companies go bankrupt because they don’t have revenue and internal liquid funds to ride out the downturn.

But our Economy Minister is still happy with our RM1.5 tril national debt because he knows all they have to do is to increase taxes. Contrast this with the concern and caution expressed by Prime Minister Datuk Seri Anwar Ibrahim when he revealed the high national debt. It seems Rafizi has a ready simple answer to Anwar’s worries.

I will let readers judge Rafizi’s response and move on to more important related issues.

High income but not developed

Rafizi is known to speak on all and sundry issues even those under the purview of other ministers such as the chicken and egg saga to boycotting high-priced restaurants rather than focusing on the supply side of growing the economy.

Recently, he said if we have 4%-5% GDP (gross domestic product) growth every year on average, we would achieve high income status by 2026. But he didn’t tell us how, except to say he has all the plans and to wait and see.

Malaysia will be the pride of the world if it can ride out the predicted recession, manage our yo-yo currency, shield from the devastating effect of geo-politics and war, and penetrate major export markets becoming increasingly protective.

Rafizi should know that achieving a high-income status is the main target of the 12th Malaysia Plan (12MP) 2021-2025. But we cannot say we are a developed country if our corruption perception index, wage levels, employee compensation, spread of wealth and poverty are at best third world.

I have compiled some of these key statistics from the 12MP and it seems that we are not even achieving the 11MP targets. I trust Rafizi has the ‘magic wand’ to turn around our country as he proudly claims.

International public sector accounting standards (IPSAS)

I should credit Rafizi though when he mentioned about private sector financial statements. The question I want to ask is why – when he was in the opposition and now in the government – is not pushing for the public sector accounting standards as set out by the United Nations and international accounting bodies such as IPSAS.

Former Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz though a renowned banker in the private sector did not promote it while in government. The Pakatan Harapan (PH) government in their first stint did mention it but it didn’t happen.

If the government implements IPSAS for example, many of the big-ticket scandals such as 1MDB and the missing littoral combat ships (LCS) would have been nipped in the bud. The annual financial statements would ensure there would be proper check-and-balance in terms of assets and liabilities (financial position) and income-expenditure (financial performance) compared to our ATM-type of financial management.

1MDB came to light because money was siphoned out and the government was pumping in money from public funds and assets until such time that the books cannot be balanced and audit firms refused to certify its accounts. But damage was done with the taxpayers now having to pay off the squandered RM42 bil.

This is an important issue I will write about in a separate article. Everyone talks about fiscal discipline, accountability, preventing leakage and wastage, fighting corruption, but nobody talks about this primary tool to address that. Even the pro-bono advisory panel to the finance minister has not mentioned it yet.

Where’s your message?

My final question to Rafizi is why you haven’t penned the minister’s message in the economy ministry’s web portal. This is an authoritative and valuable source of the latest thinking and deeds of ministers.

You have so much to lecture us but shouldn’t you be articulating and writing your thoughts. After almost 100 days, the only message is “This page will be updated”. While you are at it, note that the information therein is outdated, for example, the portal still talks about implementing Vision 2020!

My concern is come another 100 days the PH-led unity government will be facing elections in six states. I acknowledge while in the opposition, you were the prime mover in mobilising the voters. But while in government, your performance is much to be desired. You can read the comments in mainstream and social media.

PM Anwar is performing admirably firing at all fronts. But sadly, his ministers, especially from PKR are a great disappointment. Don’t be surprised if the urban and educated voters take their grouses out at the ballot box. – Feb 20, 2023

Dr Raman Letchumanan is a former senior official (environment) in Malaysia and ASEAN, and Senior Fellow at Nanyang Technological University Singapore. He is an accredited accountant (Malaysia/UK) and has a Ph.D. in environmental economics, among other qualifications. Contact: [email protected].