An analysis on the financial performance of Penang against five other Malaysia states namely Selangor, Kelantan, Melaka, Johor and Sarawak.
By Calvin Sankaran
My earlier analysis of the Penang state government’s financial management performance attracted considerable interest and provoked intense debate among readers. Some the readers requested for a further analysis to benchmark Penang’s performance with other Malaysian states. Such analysis, these readers felt, would conclusively answer the question of who is better at financial management – Barisan Nasional (BN) or Pakatan Harapan/Rakyat (PH/PR), the two competing political coalitions.
Concurring with this viewpoint and acceding to their request I have expanded my analysis to compare the financial performance of Penang with 5 other Malaysia states namely Selangor, Kelantan, Melaka, Johor and Sarawak.
The analysis looks at 6 different performance indicators, namely (1) Revenue (2) Revenue Sustainability (3) Administrative Efficiency (4) Developmental Spend (5) Consolidated Revenue Funds and (6) Financial Management Rating. The reason why these Key Performance Indicators (KPIs) were chosen is to be consistent with the previous analysis on Penang.
In addition to the quantitative analysis, I’ll also added some qualitative observations of the states’ financial management based on the Auditor-General and the states’ own financial reports. The time period for the analysis remains the same – Financial Years 2007 to 2014.
1. Revenue
For Penang’s Chief Minister Lim Guan Eng, the fact that the state’s revenue almost tripled from RM295.9 Million to RM799.7 Million between 2007 and 2014 is a source of great pride. This is a point that the CM repeatedly highlights in almost every one of his ceramahs, press conferences or speeches as the conclusive proof of PR/PH’s superior financial management capability vis-à-vis BN.
While the increase of RM503.8 million is indeed impressive, however when compared to other states, it looks puny. During the same period, Sarawak had managed to increase their revenue by an astonishing RM4.8 billion while Johor and Selangor also managed to grow their revenues by RM764.2 million and RM1.67 billion respectively.
As such, in terms of revenue increase, Penang’s performance is actually well below average (placed in 4th position in the list of 6 Malaysian states).
2. Revenue Sustainability
While Penang might not have done well quantitatively, let’s look at the revenue qualitatively. When we look at the source of revenue, as revealed by the previous analysis, Penang’s increase is driven entirely by an unsustainable and undesirable practice of selling of public assets (land) to private companies.
For the period 2007 to 2014, as reported in my previous analysis, Penang’s land sales as well as taxes related to land and property development, contributed to hundreds of millions to the state’s coffers.
However for Sarawak, Melaka and Kelantan, the states’ income were mostly derived from returns of investments, quit rents, natural resources or other sustainable sources. Only Selangor and Johor show a similar trend as in Penang in depending heavily on land sales for revenue generation.
However, Johor is almost 20 times the size of Penang and has a massive land bank. Furthermore the state in collaboration with the Federal Government is developing the Iskandar Region as the new growth corridor for Malaysia. It is well-known that Iskandar is considered as one of the most important strategic initiatives for the country.
Unlike land sales in Penang which are mostly for property development that only benefit and enriches the developers, Johor’s lands are being developed primarily for public benefit and for productive usage such as industrial, medical, transportation, entertainment, IT, etc. Also in terms of scale and contribution to the state’s coffers, the Johor’s land sales are much smaller than Penang’s.
As for Selangor, the state is around eight times bigger than Penang so there is less concern on the land sales. However, it does look like the state leadership also uses land sales to generate revenue in a less than responsible manner.
As such, in turns of revenue sustainability, Penang drops to the last position in the list.
3. Expenditure
As reported in my previous analysis, for the period between 2007 and 2014 the expenditures of the Penang state government almost tripled from RM252.3 Million to RM745.54 Million.
When compared to other states, this is by far the highest increase in administrative expenditures. The next highest increase came from Sarawak, whose expenditure grew around two times while other states’ recorded increases ranging between 1 to 1.5 times in the same period of time.
As such, in terms of administrative efficiency, Penang again occupies the last place in the list due to a failure to manage cost and sheer profligacy. This is indeed a surprising finding as the CM has always claimed that due to the state’s competency, clean governance, open tender system and anti-corruption efforts, Penang has saved hundreds of millions. However, the data evidently does not support this and clearly contradicts the CM’s claims.
4. Developmental Spending
In terms of public spending, Penang spent only 24% of its revenue on developing the state which was far lower than the 44% that the previous BN-state government had spent. When we benchmark this with other states, Penang again occupies the last position in the ranking. Selangor for example spent 65% of its revenue for development while Johor and Sarawak registered an impressive 55% and 42% respectively. Even Kelantan allocates 35% of its revenue for development.
This yet again comes as a surprise as Lim Guan Eng has always maintained that his administration is a people-centric one which spends more money for people’s benefit.
5. Consolidated Revenue Fund
This is certainly the achievement that the CM feels the proudest. He never fails to point out that between 2007 and 2014, Penang’s Consolidated Revenue Fund (CRF) had increased spectacularly from RM373.6 million to RM880.6 million.
Yet again, when compared to its peers Penang’s number looks positively embarrassing. Sarawak’s CRF stood at RM27 billion at the end of 2014. Johor registered RM2.3 billion while Selangor had accumulated RM2.25 billion. Only Melaka and Kelantan fared worse than Penang.
As such, in terms of CRF performance, Penang occupies the fourth place.
6. Departmental Financial Management ranking
The CM gushes with pride when pointing out the fact that all 6 Penang state government departments scored either a “Good” or “Excellent” ranking by the Auditor-General for financial management practices. How did other states perform?
In fact, apart from Melaka, all other states also scored either “Good” or “Excellent” in financial management of state departments. Only Melaka didn’t replicate the same feat – it had one department scoring a mere “Satisfactory” score.
As such, in terms of financial management score, Penang’s performance is good but its peers did equally well.
Summary and Conclusion
To summarise the results, out of the 6 KPIs that were evaluated, Penang ranked last in three of the KPIs and 4th in two other indicators. For Departmental Financial Management rating, Penang did better, occupying the first position jointly with four other states.
This means that the claims that Penang has done outstandingly well in financial management is clearly a myth that is not grounded in hard data or facts. That many people believe this claim is a testament to the effectiveness of the clever and relentless propaganda of the state government and its leaders.
In fact when compared to other BN and PH governed states, Penang ranks well below average. Based on detailed analysis, states such as Sarawak and Johor and even Selangor have performed far better quantitatively and qualitatively. Overall, only Kelantan has done poorer than Penang.
Calvin Sankaran is an FMT reader.
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