Why Does The Malaysian Government Need A Supplementary Budget?

As Malaysia tries to get its finances in order, the Government’s move to table an additional RM4,112,107,000 for its 2014 budget was met with criticism among some quarters.

The bill was tabled in parliament on Monday with the following break down:

supp budget table

Is this good for Malaysia’s economic health?

Some may be taken aback with the supplementary budget and some red flags may even be raised wondering why more money is needed by the government just seven months after the Budget 2014 was tabled.

However, an economist would have been expecting this call for more money, based on past record and also based on the country’s expenditure pattern.

The current government has been tabling at least two supplementary budgets a year since 2009. The recently tabled supplementary budget for 2014 is significantly lower than the last one (6%) with only a 1.56% increase from the original Budget 2014.

In a report published by The Malaysian Insider, economists said the amount announced in this supplementary budget was relatively small and within expectations.

However, the government’s ability to regularly secure approval for supplementary budgets in recent years adds concerns over the rising fiscal deficit. In 2013, during the tabling of the second supplementary budget, Chua Hak Bin, head of emerging market economics at Bank of America-Merrill Lynch, expressed that this ease of approval for supplementary budget may render the original budgets as merely “soft constraint” for the country to manage its finances.

How will this affect our fiscal deficit?

According Suhaimi Ilias, chief economist at Maybank Investment Bank, since year 2000, the government has consistently overspent on operating expenditure (87%), with the remaining additional cost spent on development expenditure (13%).

The government’s operating expenditure rose 2.8% year-on-year to RM211.3 billion in 2013, central bank data shows while revenue climbed 2.6% to RM213.4 billion.

With the target fiscal deficit of 3.5% (from 3.9%) of GDP for this year in mind, the government has continued to cut its hefty subsidy spending in the first three months of 2014. According to central bank data, the country’s debt-to-GDP ratio was at 53.8% at the end of 2013, a sharp increase from 43% in 2008 and close to an official debt ceiling of 55%.

Billing of supplementary budget is not something new, especially in Malaysia. However, to avoid complacency towards it, a clear reduction in the supplementary amount requested is the key and eventually to stop the practice of requesting for more money post-budget.

Malaysia is without a doubt a nation in debt, though we are not the only nation in debt, but it doesn’t mean we should not strive to manage our finances better. Good money management should not just apply to each individual or household, but also the country as a whole.

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