Spending big for growth

4 billion ringgit to shelter a booming Sabah from a looming global recession

As China warns of a looming global recession, Sabah is celebrating its economic success. It has just proposed the biggest ever spending of 4.05 billion ringgit ($1.3 billion) for next year that will grow its economy by between 4.5% and 5%. Its optimism is not unfounded: Sabah’s GDP is to grow between 3% and 4% this year, down from an earlier estimate of about 6%, despite a global financial turmoil sparked by a European debt crisis. And America is on the brink of a recession as it struggles to create more jobs to stem the tide of unemployment. Nationally, there is much to cheer. Real GDP grew strongly by 5.8% in the third quarter year on year from slightly more than 4% in the second quarter, boosted by higher consumer spending and exports.

Sabah’s budget next year will again see a deficit of about 360m ringgit with revenue estimated at 3.69 billion ringgit. But it has become a moot point as the state continues to chalk up strong surpluses. These speak of sheer financial wizardry amid an uncertain global economy or an overly conservative estimate of income. But big spending becomes imperative to spur GDP growth to insulate Sabah from the vagaries of a world economy even though commodities such as palm oil, timber, rubber, oil and gas continue to fetch high prices even as manufacturing slows down.

Malaysia’s auditor-general has nothing but praise for Sabah’s financial management for 11 straight years. Surpluses have added to the state’s reserves of more than 3 billion ringgit. And Sabah has always repaid federal loans on time. Moody has certified the Sabah government for efficient and proper budget management for three years running and RAM has given it a triple-A rating for its finances.

Revenue this year has been revised to a high of 3.82 billion ringgit, adding slightly more than a billion ringgit or 39% to the budgeted estimate. Expenditure stays at 3.09 billion ringgit.

Sabah has limited sources of income, deriving 59% of its revenue from oil royalties and investments, and 32% from taxes, mostly from sales tax on crude palm oil (CPO), and 9% from federal grants. Almost all of taxes come from a 7% sales tax on CPO, 1 billion ringgit out of 1.2 billion ringgit.

Next year’s budget focuses on Chief Minister Musa Aman’s three-prong Halatuju strategy to develop agriculture, tourism and manufacturing with an emphasis on creating jobs and developing skills to prepare Sabahans for high income. Musa is also finance minister.

Other than salaries and administrative expenses, a big chunk of the expenditure, 1.3 billion ringgit, will go to pay for infrastructure; 459m ringgit will be spent on supplying clean water, 271m ringgit on roads and 64m ringgit on sewage.

About 336m will pay for agriculture; 159m for tourism and 169m ringgit will be spent on bringing riches to the village poor. About 204m ringgit will go to train Sabahans for jobs, scholarships, and professional and vocational skills training.

There is 123m ringgit for new townships and housing.

Information and communication technology (ICT) gets a 72m-ringgit boost. The money will be used to set up projects such as an e-constituency portal, electronic community portal (e-Mas) and e-Desa centres that will allow the people to interact with their government. – Insight Sabah

Pictures by Flanegan Bainon

The biggest budget ever ►