How international oil price fluctuations affect Malaysian government’s fiscal positions?

Abstract

Malaysian government fiscal dependency on oil revenues from its national oil company, PETONAS, and huge government expenditure on fuel subsidies to its citizens has major influences on the country’s fiscal policy agenda. On average, almost 35% of the Malaysian government revenues come from tax and dividend payments from PETRONAS, and averagely, 7% of the government revenue is spent on fuel subsidy. Since oil profit and fuels subsidies payments depend heavily on international oil price, this paper estimates how international oil prices volatility affect Malaysian government’s fiscal position and ultimately, how high dependency on PETRONAS’s revenue to finance government budget affect the whole economy in general. The interactions between volatility of international oil prices from 2000 to 2011 and government budgets, in term of energy subsidies, and oil revenues have been analyzed to study the effect. The main results show that there are direct relationships between changes in oil price and 1) PETRONAS revenue 2) government revenue 3) government expenditure (in term of fuel subsidies payment) and 4) government debt. Additional analysis reveals that large fuel subsidies payment and high dependency on PETRONAS’s revenue to finance government budget have negative impact on Malaysian economic growth since both of these components are very susceptible to oil price shocks. In order for Malaysia to prevent the volatility effects of oil prices and avoid mismanagement of its natural resource revenues, it will need to make significant decision by increasing its tax base, reducing its fuel subsidies and establishing sovereign wealth fund to properly manage country’s natural resources.

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The Time Has Come For Malaysia to End Ethnic Discrimination in Its Education System

Malaysian population consists of three major ethnic groups, namely Malays, who are indigenous to Malaysia, and the ethnic Chinese and Indians who were brought in large numbers by the British during the colonial era. During that time, a large majority of the Malays live in the rural areas and have been segregated from economic development. Whereas, the Malaysian Chinese and Indian that live primarily in the urban area have had a better education since the majority of the schools built by the British were in the urban areas. Due to large inequality in education between ethnic groups, the government at that time believed that it is best to give special privileges towards Malays ethnic group in order to restore racial equality. Article 153 of the Constitution allows special privileges and quotas for the Malays in the civil service, public scholarship and public education. This special privileges generally have help Malays to have better education and to escape poverty, however this reverse discrimination is not appropriate anymore  since its deprived other ethnic minority and hinders the true potential for Malaysia to fully develop its human capital.

According to Watson (1980), “the most striking educational discrimination in favor of the Malays has taken place at tertiary level”. More than 80% of admissions into public universities are reserved for the Malays and the government even established one university (MARA University of Technology) with a student population of 170,000 just for Malay only (Human Rights Foundation, 2011). In 2010 National Budget, RM 2.8 billion was allocated for student’s assistance scholarships but only 5% were estimated to be received by non-Malay students (Ministryof Finance , 2010). These discriminational policies are actually threatening Malaysia’s future development because it not only segregated its citizen but also crated racial tension between ethnic groups. Furthermore, it has terribly failed to eradicate the poverty among low income Malay since most of the scholarships and tertiary educational opportunities were concentrated within the wealthy Malays group (Mukherjee and Sarjit, 1985).

Quality needs equality. If Malaysia is going to be successful in economic growth, the government must implement a massive reform in educational system to ensure that all of its citizens have equal access to education so that it can develop better human capital that can fulfill high skilled labor demand in the country. Ethnic quotas and discrimination should be eliminated at all educational levels to ensure stable racial relation among all ethnic groups can be preserved. Educational policies in the future should be geared more towards the poor and disadvantaged of all ethnic groups. It also should emphasize educational improvement, especially in rural and poor urban areas where the economically disadvantaged are most often situated. Currently, Malaysian government has spent billions of dollars to send students to study abroad. Instead of investing heavily in sponsoring students to study overseas, it would seem more practical to construct more higher-education facilities in Malaysia to encourage students to attend universities at home, thus saving significant foreign exchange. With more quality universities at home, there would be less need for giving Malays preferential scholarship treatment, further fostering local human capital and national unity among all ethnic groups.

Works Cited

Human Rights Foundation. (2011). Institutional Racism and Religious freedom in Malaysia: prepared for US State Department.

Ministryof Finance . (2010). BUDGET 2010 Malaysia Highlights .

Mukherjee, H., & Sarjit, J. (1985). Education and Social Policy: The Malaysian Case. Prospects, XV(2), 289-300.

Watson, J. (1980). Education and Cultural Pluralism in South East Asia, with Special Reference to Peninsular Malaysia. Comparative Education, 16(2), 139-158.