Like many East Asian economies, Malaysia is a resource-surplus nation. This is indicated by the surplus in the current account of the nation’s balance of payments (BOP). Mathematically, this balance is the excess (S-I) of national savings (S) over total investments (I). This is one important indicator of the nation’s economic health.
This surplus is, however, owned by the private sector given that the public sector is in deficit for many years. Hence, the private sector should assume a greater role in financing economic activities of the country. The government deficit forces it to borrow so as to sustain development expenditures as its current revenue barely meets its operating expenses. These borrowings are, however, productive as they help build physical and social capital such as infrastructure, hospitals, and schools.
Thanks to the implementation of the Goods and Services Tax (GST), a significant amount of revenue, compensating for the decline in oil revenue, has been collected. If the government had procrastinated in its implementation, the quantum of public capital formation would have been much scaled down and our potential for higher standards of living impaired.
Notwithstanding the higher revenue collected from the GST, it would still be good to mobilise private sector resources to finance growth-generating activities in the country, including for financing public sector development projects such as social infrastructure, lest the funds move overseas in search of better returns. The significant recent financial outflows that we experienced partly reflect this view.
Hence, initiatives in the forms of privatisation and broad public-private sector partnership must be explored and experimented, and carried out so that, increasingly, more public sector projects are financed by domestic private resources. For this to take place, however, our public sector financial specialists must research into ways and means to encourage more private sector financing of public sector development projects.
As we know, the public sector’s raison d’etre is providing “public good” (the consumption of one good does not deprive others from enjoying the same service or good, such as in the maintenance of law and order, defence, and management of judicial services). There are now many cases for public goods and services that can be priced and thus be supplied by private sector operators. If the price is right, there is no shortage of suppliers who are too ready to provide public good. As an example, primary schools and hospital care, which were pure public goods once, are now readily provided by the private sector.
In exploring the various modalities of public-private partnership techniques, as done elsewhere, it appears that the only contentious issue in this matter is how readily open are we to treat payment of such expenses such as rentals, as development expenditures. If there is an accepted accounting formula that treats such payments of development projects as development expenses and no longer as traditional operating expense, we should opt for that technique and move on.
In fact, the provision of hostels and quarters, and of offices and colleges and many more can be open to this technique of financing and their payments can be treated as development expenditure. This approach has been proven to work elsewhere.
It has also been observed that projects financed in this manner are properly maintained by the private sector and their economic life is longer because of strict maintenance discipline.
Such burden of financing and maintenance by the private sector of public sector projects brings lots of indirect benefits to the macroeconomy, such as more reliance on domestic resources, lesser financial outflows, lesser external borrowing, and, consequently, lesser exposure of our currency to international fluctuations. Stretching the argument further, national debt may be reduced although public sector debt to domestic lenders may increase, but this, on a macroeconomic basis, is just payment from one pocket to another; it does not involve cross-border outflows.
This argument, however, should not be viewed as abandoning good fiscal management, such as the need to maintain prudence and to control deficit. Needless to say, private-public sector initiatives demand even more discipline and scrutiny to ensure balanced rights and obligations between public and private sectors.
National economic management is complex, involving balancing between international and national perspectives, between public sector and private sector role, and in balancing burden of debt servicing between current and future generations. And, it equally demands that policymakers, top civil servants, especially, understand the nexus and depth of policymaking while being prepared to explore and undertake research and development initiatives so as to provide relevant and robust policy advice to the government of the day. Without this view, the civil service may risk giving simplistic advice and lacking in thoroughness.
We all know that a modern democracy relies much on an informed and a knowledgeable civil service, and a far-sighted one, too. In this regard, our civil service has the opportunity to beef up its strength to claim its long established role as the main adviser to the government.
Tan Sri Dr. Sulaiman Mahbob is chairman of Malaysian Institute of Economic Research