Dr M, Harapan have poor track record of debt reduction

COMMENT | I was amused with Dr Mahathir Mohamad's recent statement in response to Prime Minister Najib Abdul Razak that Pakatan Harapan's manifesto will reduce our government debt.

Harapan's manifesto for GE14 is about abolishing everything and paying a lot of “dedak” (animal feed) to the rakyat, including an illogical RM250 per month per person for those at the minimum wage.

In fact, there is little mention in their manifesto of how they intend to reduce the deficit or the government debt.

The track-record of both the Selangor and Penang governments since 2008 is a good indicator that Harapan will fail to contain yearly expenses. The yearly operations expenses for both states have increased substantially with the Penang government, in particular, increasing it by 500 percent since 2008.

To fund this soaring expenses, the Penang government sold or traded away almost RM40 billion of state land and assets, while both state governments had substantially increased property and developer charges that add substantially to the cost of properties.

The Penang government had sold so much land since taking over in 2008 that I estimate that less than five percent of land in Penang is still owned by the state govt - down from 18 percent in 2008.

The people may not feel it today but this will certainly impact future generations since someone has to fund the 500 percent increase in yearly operating expenses.

In Penang's case, many of the development charges have been doubled and tripled which lead property developers to pass on the cost to the people.

Calculations have shown that these cost increases have led to a virtual RM120psf tax on properties in Penang, which is then passed on to the people in the form of higher property loans and increased rentals that drive up the cost of living.

Also, many Malaysians are now aware that that the Penang government's 95 percent debt reduction which DAP had shamelessly tried to take credit for in the past was due to the federal government's 2010 move to change Penang's water debt into a 45-year annual lease payment instead.

In Mohamed Azmin Ali's second year as menteri besar, Selangor had also reverted to a deficit state in 2016.

At the same time, Azmin also signed to borrow as much as RM7 billion from the federal government for their Selangor water restructuring exercise.

Najib saved Malaysia in 2009

In Mahathir's case, his record of debt reduction is not strong. From 1981 to 2003, Mahathir increased the size of the government debt by 706 percent.

During the last six years that Mahathir was prime minister from 1998 to 2003, he increased the government debt by 112 percent when he consistently ran budget deficits of four to six percent as compared to our current budget deficit of 2.8 percent to three percent recently.

In fact, in the first six years of him being in power, Mahathir (photo) more than doubled the debt to GDP ratio from 44 percent in 1980 to 103.4 percent in 1986. This debt to GDP ratio stayed above 60 percent for more than a decade too.

As a result, the country's debt-service ratio (the amount the government pays to service its debt compared to our GDP) was as high as 31.8 percent in 1987 and stayed above 20 percent for many years.

Compare that to the current debt-to-GDP ratio of 50 percent, and debt service ratio of 12 percent under Najib.

The only time when government debt under Najib jumped substantially was when he took office in 2009, where he introduced three big stimulus packages that caused the debt to jump from 40 percent to 50.8 percent in one year, due to the slump in investments and exports during the Great Global Recession of 2007 to 2012 - the worst since the 1930s.

It was during this time that the US government was forced to bail out Citibank, General Motors and AIG.

As a result of these big stimulus packages that pumped huge amounts of money into the economy, Malaysia's economy was saved quickly with many people unaware of the potential size and scale of what devastation could have taken place if these stimulus measures that increased debt were not taken.

Ironically, many Malaysians who blamed Najib for increasing the government debt then were actually blaming him for saving Malaysia in 2009.

Based on Mahathir and Harapan's track record as well as their irresponsible "mansuh (abolish) everything" manifesto, it is almost certain that the government debts will skyrocket.

ERIC SEE-TO is BN strategic communication department deputy director.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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