Increase development expenditure for Budget 2020, say analysts

The expenditure has stronger multiplier effects and higher contribution to the country’s production capacity increase


THE government should focus on increasing allocation for development spending in Budget 2020, analysts observed.

This would help the country to sustain itself in the near-to-mid term, especially in today’s business and economic uncertainties.

Sunway University Business School economist Prof Dr Yeah Kim Leng said as development expenditure share has dipped below 20% since 2012, the government in its efforts to raise spending efficiency should raise the share for development.

This, he said, is due to the sector’s stronger multiplier effects and higher contribution to the country’s production capacity increase compared to operating expenditure.

“It would be good to have development spending inch closer to RM60 billion in 2020 from RM55 billion budgeted for 2019,” he told The Malaysian Reserve yesterday.

A total of RM314.5 billion was allocated for Budget 2019 versus RM290.4 billion in the previous year, with 82.61% or RM259.85 billion for operations expenditure and 17.39% or RM54.7 billion for development.

For development expenditure in Budget 2019, the economic sector received the highest allocation with RM29.2 billion or 53.4% of RM54.7 billion, encompassing transport, trade, industry, energy and public utilities, and agriculture.

Meanwhile, the social sector received 27.8% or RM15.2 billion; 12.9% or RM7.1 billion for the security sector; and 5.9% or RM3.2 billion for general administration.

Between the budgets of 2010 and 2018, around 72% to 83% was allocated for operations expenditure, while around 16% to 27% for development expenditure.

Nonetheless, Yeah said a large part of development expenditure especially for purchase of machinery, equipment and other forms of capital, is counted as public investment, which goes directly into the country’s GDP.

“More importantly, the investment into capital assets like human capital, research and development (R&D), and technological capabilities will raise the country’s production capacity, therefore helping to sustain economic expansion over time,” he said.

He added that ministries which had their budgets reduced substantially in 2019 like agriculture and rural development, trade and industry, transport, security and housing will likely receive higher allocations.

“Without the sizeable one-off tax refund of RM37 billion in the previous budget, the Finance Ministry could increase allocations for most ministries including the large ones such as education, health and defence.

“Transport allocations were sizeable in 2018 and 2019, amounting to RM15.5 billion and RM13.4 billion respectively, and is likely to continue due to the ongoing large rail and highway infrastructure projects.

“More development expenditure on digital and communications infrastructures are required to accelerate the shift to a digital economy,” he said.

Yeah also said more development funds need to be channelled to raise the quality of healthcare, housing and environment.

“Allocations are urgently needed to compensate states for not logging, especially in water catchment areas and reducing overall deforestation, in line with green initiatives to stem global warming and climate change.”

Institute for Democracy and Economic Affairs research manager Lau Zheng Zhou, meanwhile, said there must be a more objective measurement in terms of the quality of projects or programmes being funded by the public sector, in addition to the spending size.

“The government can help create an enabling environment which is underserved by the private sector, so that industry players can be more competitive and innovative.

“Development spending can be directed to promote environment sustainability like renewable-energy products and agricultural technology.

“Development spending can be directed at helping small and medium enterprises achieve efficiency and higher productivity by increasing digitalisation, as well as a closer academic-industry collaboration, so that R&D can be better commercialised,” he said.

Lau added that development expenditure plays a crucial role to enhance domestic economic competitiveness because basic infrastructure, both soft and hard, is a public good without which private sector players will not invest optimally.

“This will then create an indirect effect in terms of employment, income growth and technological upgrading,” he said.

Lau also said there should be a balance in how the budget is allocated between ministries because the issues that the government faces are often multi-faceted.

“This in addition to meeting operating expenditure needs by various ministries.

“Budget 2019 development expenditure had an added emphasis to ensure balanced development, improve the ecosystem for women in the workforce, and incentivise investments in the environment and sustainable use of energy.

“While it is too soon to comment on the net impact of this development spending, the policy push is more visible,” he said.