16 March 2015
Tighten expenditure and save petroleum revenue
16 March 2015, Kuala Lumpur – The Institute for Democracy and Economic Affairs (IDEAS) today released a paper on how Malaysia’s oil and gas revenues can be managed better so that the benefits can be enjoyed by future generations. The paper proposes that the Kumpulan Wang Amanah Negara (KWAN), Malaysia’s natural resource fund, should be improved and its governance revised for this purpose. The improvements proposed will make sure some of petroleum revenue can be enjoyed by future generations and used for more productive purposes. Among its recommendations are to improve the governance of the fund, to revise the deposit and withdrawal rules, and to improve public disclosure on the funds.
There has been great interest in setting a Special Fund in which all or part of Malaysia’s petroleum revenues will be stored. The government’s New Economic Model has mentioned the need to set up a special petroleum fund, whilst Members of Parliament such as YB Nurul Izzah, YB Lim Kit Siang and YB Rafizi Ramli have also made statements on the issue. The creation of such a fund is considered a way to make the government more fiscally prudent.
Our paper however argues that instead of creating a new mechanism, the existing Kumpulan Wang Amanah Negara (National Trust Fund), which was specifically established to save revenues from Malaysia’s depleting resources can be used for this purpose. The governance mechanism of the Fund however needs to be vastly improved.
For instance, the government is encouraged to limit the increase of its operating expenditure to 2% annually so that a sizeable amount of deposits can be made to the Fund. The increase of Malaysia’s operating expenditures has not always been consistent. In some years, the increase was below 5%, but in other years, such as in 2008 and 2011, it increased more than 20%. On average, since 1971, Malaysia’s operating expenditures increased about 11% annually.
The paper also recommends more active involvement of the Parliament in approving withdrawals from the fund and ensuring that withdrawals are based on expected returns of the Fund’s investment.
Commenting on the paper, Tricia Yeoh, Chief Operating Officer of IDEAS, says that “In light of scandals involving new investment vehicles by the government, I think the idea of this paper to improve the current petroleum fund, instead of creating new one, should be applauded. If the government takes the expenditures rule recommendation by this paper seriously, they should be able to reduce its budget deficit and save some of our petroleum revenues for future generations. By doing this, we can also gradually reduce our over-dependence on petroleum revenues, which are unsustainable in the long-run.
IDEAS is Malaysia’s first think-tank dedicated to promoting market-based solutions to public policy challenges. We are an independent not-for-profit organisation. As a cross-partisan think tank, we work across the political spectrum. Our purpose is to advance market-based principles, and we are not bound by party politics, race or religion. Our mission is to improve the level of understanding and acceptance of public policies based on the principles of rule of law, limited government, free markets and free individuals. For more information, please visit http://ideas.org.my/