Potential In Budget To Add Impetus To Growth Of Strategic Sectors

FLASHBACK: Musa Aman shows off his Budget 2018 to media photographers. With him are two of his deputies, Pairin Kitingan and Yahya Hussin.

By RAFIQ IDRIS
COMMENT: Following the national budget announcement last month, the state’s budget was then tabled by Musa Hj Aman on November 17, 2017. Here are my views on the budget.

There are several salient questions that are popularly raised: i) Is surplus budgeting a good thing? ii). What are the important characteristics of the recent budget announcement? iii) What is the potential effect of the state’s budget on Sabah’s economy?

I would like to begin by explaining what is a budget. The annual budget of any country or state is the announcement of how money is to be spent by the government in the following year. It is actually the ‘government’s spending’ for the next fiscal year and is known as an exercise of fiscal policy.

The recent announcement by Musa Aman indicates that the state government will run a surplus budget. It indicates that the expected amount of revenue to be collected next year is greater than the amount of proposed government expenditure.

RAFIQ IDRIS

That shows that the government is spending within the means of its affordability and hence does not have to borrow for the expenditure.

In this regard, I would say that a ‘surplus budget’ is indeed a good thing, if it is not too large.

Looking at the tabled budget surplus, it is not that large and is less than RM100 million. In my humble opinion, a large budget surplus or budget deficit on contrary may not be good because the economy should use the money for productive purpose which may stimulate growth. A large budget deficit is also not good if the government runs a large deficit for many years.

This is not good because any government may have to source the deficit from somewhere and it is exposed to change in interest rate and exchange rate that may eventually increase the amount of debt that the government would have to pay.

Pertaining to the characteristics of the budget announcement, firstly, in my opinion, the budget is indeed inclusive. The money to be spent does not specifically focus on people with particular group of race or with certain religious background. In addition, it is not concentrated on certain sector only but for various sectors.

Secondly, the budget is also concerned about the welfare and wellbeing of the people. For this purpose, RM422.5 million is being allocated. It includes the spending for programs such as Mini Estet Sejahtera (MESEJ), Ladang-ladang PPRT, Program Peningkatan Ekonomi Setempat (PPES), Program Kampung Sejahtera (PKS), Projek-projek Pembangunan Kecil (PPK), allocations for disabled and orphans, microcredit program and allocation for students’ assistance among others.

FLASHBACK: Musa tries his hand at tapping a rubber tree to officially launch the Mini Estet Sejahtera (MESEJ) rubber smallholding scheme at Kampung Ulu Patian, Kemabong on March 22, 2013.

Thirdly, the budget has the characteristic of stimulating other components of Gross Domestic Product (GDP). GDP comprises of private consumption (C), gross private domestic investment (I), government expenditure (G) and net export (NX). The recent budget increases G component of GDP.

In addition, the recent budget has the potential of increasing C and I component of GDP. For instance, the special financial assistance amounting RM1500 to all Sabah’s civil servants has the potential of stimulating the C component.

Moreover, infrastructure allocation such as for roads upgrading, water supply related allocation and public facilities among others which are worth RM1,339.6 million, has the potential to stimulate I component at least in the long run.

About the potential effects of the budget on Sabah’s economy, I would focus on three main effects. Firstly, in general, the budget has the potential to stimulate economic growth for 2018 hence making GDP potentially to grow between 4-6%.

With the past years’ record, despite the slowing down of world economy and the declining of world oil price, Sabah has been able to grow within the range of 4-6%. I have the confident that Sabah would be able to sustain the said growth range.

However, this is very much depending on various factors such as the performance of world economy, fluctuations of oil price, world commodity prices, exchange rate and policy changes that may affect the demand for Sabah’s export products among others.

Secondly, the budget has the potential to stimulate strategic sectors such as tourism where RM228 million was allocated. The fund is being allocated for rural tourism development, lung cleansing tourism and preserving historical heritage. In addition, RM509.7 million is allocated for agriculture for various expenditure.

All these indeed have a potential to add impetus to the growth of strategic sectors.

Thirdly, in the long run it has the potential to attract foreign direct investments. The reason I am saying this is because many of the things being mentioned including other developmental projects announced by the Prime Minister in recent and past budget (such as Pan Borneo Highway Project, Sapangar Port Transhipment Hub) have great potentialities to attract foreign direct investment at least in the long run because of lower logistical cost, better infrastructure and improve efficiency in port.

• Dr Rafiq Idris is an Economist, Senior Lecturer from Financial Economics Program, Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah. He is known for his research in trade, economic development and expertise in Trans-Pacific Partnership Agreement (TPPA).