Norway invested oil wealth and has sovereign wealth fund now worth US$865 billion, and Malaysia…?

Blessed with sweet crude, but cursed with bitter debts

COMMENT Petronas has contributed about RM800 billion to the government since its inception in 1974.

In 2008 alone Petronas contributed about 44 percent of the federal government revenue, but this has dropped to 31 percent in 2014 and it expected to drop further to 22 percent in 2016.

Fossil oil, called black gold, was once priced at US$110 (RM482) a barrel is now hovering around US$30 (RM131.43) a barrel.

Crude oil has plummeted to a new low, never seen for a long time, and the market foresees a worsening supply gluts along with slowdown in demand. So the good old days of high oil revenue are over and Malaysia has to tighten its fiscal belt.

Wastage, pilferage and leakages in public spending have to be curbed but the Umno/BN government has a poor record on this spending. The government for the first time has turned to tax people by introducing GST to raise revenue. It’s a known fact that governments with rich natural resources are poor in managing wealth.

Petronas, the government saviour, sits tight in its 88-storey Twin Towers, once the world’s tallest twin buildings, dominate the skyline of Kuala Lumpur.

Over the years, prime ministers have tapped into Petronas’ funds to build their dream projects, such as the Twin Towers, and bail out their mistakes, like Bank Bumiputra Bhd in 1985 with RM3.5 billion, saving a debt-ridden shipping company and even rescuing Proton at one point.

Petronas is only accountable to the Prime Minister’s Office but it has been used by powerful Umno politicians for lucrative and exorbitant contracts.

Now, Petronas is finally trying to say ‘no’ – which may lead to strained relations between Petronas and the government.

The resource-rich Umno/BN government has been less dependent on taxes for revenue and thus less accountable to Malaysians – and therefore became more authoritarian, using oppressive laws and tactics to rein opposition and dissenting voices.

Opposition to the construction of white elephant and extravagant projects, built at high prices, went unheard.

Now that oil revenue has reduced drastically and a new indirect tax, the goods and services tax (GST), has been introduced, the government will be forced to be more accountable.

The divide-and-rule policies of yesteryear may lose their bait and those taxed now, for the first time, will demand more accountability.

Nation remains heavily indebted

Despite the RM800 billion oil revenues paid by Petronas for the past 50 years, Malaysia remains heavily indebted, with public debt at RM582.8 billion or 54.5 percent of the gross domestic product (GDP) and household debt at RM940.4 billion or 87.9 percent of the GDP at the end of 2014.

Malaysia had to face a continuous budget deficit for the past 16 years. Essential services, such as the supply of water, electricity and highways, just to name a few are all privatised.

Malaysia has driven away its skilled and knowledgeable citizens to other countries and instead imported 6.7 million legal and illegal unskilled foreign workers, who are stagnating the wages of Malaysian workers. Only 28 percent of our labour force is considered skilled, compared with 50 percent in Singapore.

Malaysia did create the National Trust Fund in 1988 to ensure revenue from natural resources, including oil and gas, continues to generate wealth for future generations.

As of 2013, Petronas was the sole contributor to the fund, with cumulative contributions of RM8 billion. With more demand for dividend payment from the government, Petronas will have less to contribute to this fund in future.

Malaysia has spent away RM792 billion of the revenue received from Petronas since 1974.

Norway started oil production in 1971 and had managed its oil wealth to protect future generations and invest the money generated in education and human resource development.

For many countries, resource wealth seems to have been a curse, rather than a blessing. But Norway has invested, instead of spending, and the country today holds one of the largest sovereign wealth funds in the world, which has grown from zero to US$865 billion within 18 years.

Blessed with sweet crude, but cursed with bitter debts
S Ramakrishnan
15 Jan 2016 – Malaysiakini


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