Tuesday, November 14, 2017

DUN Nov 2017: See Chee How's Speech

Allow me to first commend the state administration for the financial performance this year, that we have an increase in revised revenue by RM779 million and no revision in ordinary expenditure, that the 2017 revised budget is expected to register a surplus of RM394 million against the original estimated deficit of RM385 million.

There is a positive gain in the actual revenue from the hill timber premium comparing to the estimated income from the same source, to the tune of RM93.8 million. However, the RM100 million revenue from hill timber premium appears to be far short of the revised target of RM300 million.

And the increase in revenue earning from hill timber premium was completely offset by the reduction in revenue earning from other forest and timber premiums, and most particularly the deviation of 34.25% from the estimated to actual collection of forest royalty by RM178.15 million. The estimated revenue was RM520.15 million but the actual revenue collected is only RM342million.

Not only was the actual collection far short from that budgeted, it was a 30% drop in revenue collection from last year, which is not proportional to the log production. I will be most grateful if the Honourable minister will enlighten us on the reasons for the plunge in the royalty collection, whether it is due to the rampant illegal logging which is always the main culprit.

In this respect with regards combating illegal logging, it is noticed that this administration appears to have adopted a different policy from the former administration which had frozen the issuance of Occupation Tickets (OTs) and Letters of Authority (LAs) for short term timber logging, identified as the main cause for illegal logging. It was announced in February that short-term timber licences will be issued through open tender process. I hope the honourable minister will enlighten this House on the number of Occupation Tickets (OTs) and Letters of Authority (LAs) for short term timber logging, whether issued through open tenders or otherwise, that were issued this year and how many of those OTs and LAs are still subsisting today. Importantly, how will the new arrangement alleviate the problem of illegal logging in the state.

It is, however, clear for all to see that the brightest spark in terms of performance in revenue generating for 2017 is the state’s earnings from investments and in particular, dividends, which saw a most pleasing actual revenue earning of RM1.5 billion. This is 198.6% or almost double the estimated dividend earning, RM755 million projected in our budget 2017.

I must congratulate the Right Honourable Chief Minister, the Honourable Second Finance Minister and the Honourable State Financial Secretary for their commendable leadership. At the same time, I must put on record our appreciation to the staffs in the finance ministry, departments and offices for their hard work which have bear this remarkable fruit.

All other states in the Federation will be envious of Sarawak for our feat, earning a whooping RM2.511 billion interest and return on our investments. This is more than 8% returns this year from the investment of our state reserves.

I pray that the state will continue with our prudent and sound financial management of our state reserves and financial resources. This is the crucial hallmark and leverage for Sarawak and it certainly augurs well in our quest for our demand for greater autonomy and devolution of powers that Sarawak is more than capable of managing and administration the fiscal powers that will be devolved to Sarawak.

This impressive returns from the interests and dividends of our investments is pivoted on the equally notable sum of state reserves that we have saved over the years, which I must caution the Right Honourable Chief Minister and the state government to zealously guard and protect it, to continue and advance the present prudent and sound financial management to ensure that it will continue to earn the interests and dividends which is much needed for the continuous development of Sarawak.

In this regards, I would like to point out the fallacy or misconception that the state could have earned more by cannibalizing our state reserves through financing our state projects.

It must be borne in mind that eventhough our savings with the commercial banks can earn only up to 3.8 percent interest per year, and our borrowings can attract up to 7 to 8 percent interest per year.

However, the commercial banks that lend their money to us are to bear statutory reserves to the Bank Negara, the administrative costs and the unforeseen risk factors in bad loans and default in payment.

According to Bank Negara Malaysia, the Statutory Reserve Requirement (SRR) is an instrument to manage liquidity. All banking institutions, development banks included, are required by law to maintain balances in their Statutory Reserve Accounts (SRA) equivalent to a certain proportion of their eligible liabilities (EL), this proportion being the SRR rate. The present rate of SRR for all banks in Malaysia is 3.5% of their eligible liabilities.

The records published have shown that commercial banks would only lend out up to 15% of the sums deposited with them.

Comparing to the Federation, from the recently revealed nation budget 2018 which was passed yesterday, our national debts is pushed to beyond RM600 billion and the government guaranteed borrowings has reached RM285 billion. However, the country has a national foreign reserves fund of RM450 billion.

The federation have maintained that reserves in the tone of RM450 billion for quite some time, with no intention to cannibalizing it to financial national projects to reduce the interests to be expended on financing them.

We must therefore be cautious in the managing of our state reserves. It sounds well and good to say that we can make use of our reserves to finance projects such as the repair and rebuilding of dilapidated schools if the federal allocation does not materialized.

With respect, the prudent approach is to approach the friendly foreign banks, banking institutions, international money markets and funds to secure the finance which attract the lowest interests, and that we require the federal government to stand as guarantor for the borrowings.

This is one other function that the state reserves plays and serves us well. With our high state reserves and prudent management, we are rated highly, higher than the federation, with all due respect. Moody has rated us “A- with positive outlook” while the federation manages an “A- with stable outlook” before the Budget 2018, which thereafter has caused the rating agency to caution that “The full credit implications of the budget will depend on whether the projected increase in revenues - the fastest since 2012 - is achievable since targets rest primarily on a rise in GST collections, which in turn rely on relatively optimistic growth projections going into 2018”.

Another international rating agency, Fitch, has equally cautioned: “We see downside risk to the government’s optimistic revenue projections. Its 2018 GDP growth forecast of 5.0%-5.5% assumes that strong recent momentum will be maintained, but there could be some headwinds from cooling external demand.”

I henceforth pray that our state reserves will be maintained and strengthened, to make use of our strong standing to attract more investments and financial resources for the needed state projects, for the greater benefits of Sarawak.

See Chee How
N11 Batu Lintang

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