The next election cycle is still more than four years away, however, Pakatan Rakyat is already ramping up its criticism on the ruling Barisan Nasional coalition. While Malaysia has relatively healthy financials, rising deficits are putting pressure on the government, which has traditionally relied on welfare handouts to gain the support of the population. A recent report published by the World Bank showed that the Malaysian government raised some $5.6 billion dollars through the securitization of government mortgages and asset sales.
Charges leveled by opposition party
The charge against the government was made by Rafizi Ramli, a Pakatan Rakyat member of parliament. According to Mr. Ramli, the government has been selling off assets in order to meet deficit targets. With budget allocations exceeding targets by some RM14.3 billion, the government needed to raise money somehow in order to keep its deficit under the 4% target. Apparently, the government has decided to sell and mortgage a large chunk of its assets. So far, the ruling government has not yet responded to the allegations or tried to explain its actions or reasoning.
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Malaysia struggling to keep debt low
While Malaysia’s total debt levels constitutionally limited to 55%, an amount the country has already reached, the government has been struggling to keep its finances in order. Malaysia has enjoyed decades of solid growth, but the economy is still sheltered, many local companies are not competitive on a global scale, government-linked companies rely on government backing, and a large segment of the population is dependent on government handouts. This equates to high public spending, an issue the Opposition has been blasting BN over.
Furthermore, some believe that the government has been using a variety of tricks and accounting methods to hide the total amount of debt owed. When government linked companies are accounted for, debt levels may be as high as RM650 billion, which would equate to approximately 65% of the GDP. With assets also being sold off, the problem could actually be worse than is being advertised.
At the same time, illegal capital outflows, which is the amount of money flowing illegally out of the country, have been dramatically trending upwards in recent years. These capital outflows also include profits legally earned but illegally removed from the country. With money flowing out of the country and debt levels already so high, the country could have difficulty stabilizing its finances.
Perhaps most complicating is the fact that Malaysia now faces a middle income trap. For the last several decades Malaysia has enjoyed steady economic growth, but with the country losing its low cost advantage, maintaining economic growth will become more and more difficult. Malaysia desperately needs to move up the value chain, and needs to do so sooner rather than later. Yet efforts to modernize the economy have not yet gained traction.
If the government is not able to increase tax revenues, the debt and future deficits will become more of a burden. The debt issue has become very sensitive and a lightening rod of criticism, especially as Pakatan Rakyat continues to build its case for a government takeover. After Pakatan Rakyat siezed control of the state government of Penang, they claimed to have reduced the state debt by 95%. Penang has also watched investments rise and has enjoyed steady economic growth.
Pakatan Rakyat making its case for national takeover
If Pakatan Rakyat can show that it can successfully manage state government affairs, it may given them their strongest case yet for a takeover of the national government. While the next election most likely won’t be held for at least four more years, both parties are already beginning to make their case. Malaysia has been ruled since independence by Barisan Nasional, which has overseen a prolonged period of economic growth. Rampant corruption in combination with a dependency on government handouts, however, has put the ruling party under intense pressure.