Tuesday, 23 November 2010

BN has bankrupted Sabah by giving away Sabahan rights and revenues

Even opposition PBS state government managed a 2 billion budget more
than 10 years ago.

Where has all Sabahan revenues gone to?

Now the AG has rated the BN government highly despite overating with
40% deficit budget?
Guaranteed by the falling state revenue.

While our gas and oil keeps on pouring out of Sabah for free to help
develop Malaysia(Malaya).

Sabah budget is amateur work of 'creative accounting'
Tue, 23 Nove 2010 11:23
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By Joe Fernandez

KOTA KINABALU: The Common Interest Group Malaysia (CigMA), an ad hoc
apolitical NGO working across the political divide, has described last
Friday's RM3.07 billion Sabah budget as "creative accounting" put
together by amateurs in the state civil service.

If deficit with water bills is added excluding the bond factor, Sabah
will suffer a deficit in revenue of over 40% next year, according to
CigMA. The state government itself expects revenue to be RM2.75
billion next year with the deficit at 11.67% (RM 320 million) while
the latest Auditor-General's report gives Sabah a good rating for
financial management.

It's not known whether the state budget takes into account the water
bills and the deficit with water bills cited by the NGO.

"It's surprising that the civil service did not engage professionals
for the job," CigMA chair Jeffrey Kitingan told a press conference
here yesterday. "Anyone can see through the budget and pick holes in

Jeffrey, for the first time in many years, had attended the state
assembly sitting on the budget last Friday.

He wanted to share his NGO's main concerns on the state's
"frightening" budget with stakeholders. Jeffrey is also the outgoing
vice-president of PKR and is currently on two months leave until Dec

Elaborating on his charge of "creative accounting", Jeffrey stressed
that the Sabah budget is a bundle of contradictions when it comes to
the salient figures or related matters and issues.

For starters, he wants the state government to explain how the per
capita income in the state will reach RM27,950 next year from this
year's supposedly RM26,355 "when the World Bank says that 40% of
Malaysia's poor reside in Sabah".

Two bond issues

If the figures are accurate, the public has the right to an
explanation on the distribution of this wealth, he points out. "When
there is no explanation, the rakyat (the people) will speculate."

Interestingly, CigMA has discovered that the state government oversaw
not one but two bond issues in mid-2009, that is, RM500 million by the
Sabah Development Bank (SDB) and another for RM544 million by the
state ministry of finance.

"It's the SDB bond issue that the media talks about all the time, with
the state government responding that it has nothing to do with it and
that it's purely undertaken by a company," said Jeffrey. "Now, we
discover from the state budget that there was actually another bond
issue around the same time totalling RM544 million. So, we are talking
about two bond issues last year and not one."

He does not think that the second bond issue had the approval of the
state assembly as required by the state constitution. An unnamed CigMA
accountant, who was also present, said that if the question of
guarantee arises, the federal government is not involved either in the
bond issue.

CigMA wonders why the RM544 million, being a loan and therefore a
liability, has been shown in the 2010 state budget as revenue – not
expenditure – and in the process apparently showing a false "reduction
in the state deficit expenditure".

Jeffrey suspects that the state assemblypersons "are ignorant and not
even aware of this deception". The whole state assembly, he said,
should be held equally responsible for supporting this "deception"
because it approved the state budget without much debate.

"Why does the state government need RM544 million for no apparent
purpose when the state ministry of finance claims that Sabah has
reserves of RM2 billion?" asked Jeffrey. "The only plausible answer is
that the RM2 billion is fixed asset – not liquid or cash – and
therefore the bond was used as cash reserve for paying emoluments
(wages) which needs eight months reserves."

Issuing a bond for "no apparent purpose" does not come cheap either at
the same time. The amortisation of the bond, maturing in 2014 at a
coupon rate of 5%, requires the state government to pay RM615 million
with the coupon amount at RM71.96 million and monthly payments of
RM10.27 million coming to RM123.24 million for a year.

This, according to Jeffrey, is obviously the wrong way of solving the
payment of the emolument problem. The reason: the state ministry of
finance "purposely" exposes Sabah to unnecessary default risk while at
the same time there are no changes to the capacity and capability of
the state institutions.

Emoluments alone come to RM597.56 million per annum for an estimated
21.7% of the state labour force.

'Whole state pawned'

Asked about the AAA rating given for the bond issue by Moody and
Rating Agency Malaysia (RAM), Jeffrey explained the rating was not
linked to capability or capacity but available resources. This simply
means that Sabah has good asset-based collateral. In simple terms, the
whole state has been pawned and in the case of default, the whole
state can be auctioned off, Jeffrey claimed.

He cautioned against not comparing apples with oranges and cited the
case of the US, in particular.

"We can't compare with the US which has a huge economy and investor
confidence remains high," said Jeffrey. "Even then, bond issues in the
US have reached a critical point vis-à-vis China, a main trading
partner. So, US President Barack Obama had to turn to India and
Indonesia recently to soak up Treasury bills (or bonds)."

Arguing against following in the footsteps of Washington on bond
issues, Jeffrey opines that unlike in Sabah, the world has confidence
in the US economy and in the greenback which is still used as a global
trade currency.

On the revenue front, the CigMA chief lamented that most income in the
Gross Domestic Product (GDP), namely income tax, export tax and tax on
petroleum and so on, all goes into the federal coffers. This meant
that the federal government has collected RM15 billion in income tax
alone last year in Sabah, CigMA has discovered, and RM22 billion if
other collections are included.

In return, Sabah got RM20 billion from the federal government for the
entire Ninth Malaysia Plan (2006-2010) period.

The Production Sharing Contract (PSC), meanwhile, allocates only 5% in
oil royalty for Sabah – with Petronas figures being a state secret –
compared with 705 in neighbouring Indonesia. To add insult to injury,
the state is no longer allowed to collect import and excise duties on
petroleum products and instead pawned off with a token RM120 million a

The state government, at the same time, "has made no attempt to
explore new economic growth areas or to seek new income streams". The
total state government investment and redeemable loans in 2009
amounted to RM4.9 billion, according to the state budget, but the
income for next year from this huge amount will total only RM158.09
million or a paltry 3.23% return despite the risks involved.

All this confirms that the state is "stagnating on purpose", said
Jeffrey, and with the people made to believe in rhetoric and hanging
on to palliatives.

He cautioned against looking at the consumption and demand patterns in
the US and Europe which have a well-established manufacturing sector
unlike Sabah which is 60% dependent on oil palm.

"There is no concerted effort to do away with the National Cabotage
Policy – 'let's look at Brunei to circumvent the NCP' – or develop
Sabah to be at par with the states in Peninsular Malaysia," he said,
implying that the state was virtually a colony of Peninsular Malaysia.

"All the talk of fixed deposit and having a good relationship with the
federal government means nothing when Sabah leaders in the state
government just keep quiet on the woes facing the state."

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