Experts recommend investing RM35 billion Petronas dividend for growth and social protection

09 Jun 2023 01:31pm
Picture for visual purpose only. - File pic
Picture for visual purpose only. - File pic

SHAH ALAM - Economists are urging the government to invest the RM35 billion dividend from Petronas into initiatives that promote growth, development, and social protection.

University of Science and Technology Provost for Research and Innovation Professor Geoffrey Williams emphasised the need to make strategic investments to ensure long-term benefits.

“With good management and new reserves, it could last perhaps 40 years which means it will continue to be the backbone of the Malaysian economy but the dividend will be uncertain.

“For this year, the RM35 billion should be directed to social protection and pensions to help people recover from the lockdowns,” he said.

Williams suggested that instead of spending the dividend, the government should establish a new sovereign wealth fund or a Malaysian Superfund to generate long-term income.

“If the RM35 billion was saved for 15 years it could provide a fund that would yield RM25 billion to RM30 billion per year after that period which can be used to fund social priorities such as pensions and social protection.

“If it was added to a consolidated fund bringing together other underperforming funds then it would be enough to provide a fully funded universal basic pension for all Malaysians, for example,” he said.

He also pointed out that funding social protection through a Malaysian Superfund would reduce the cost of general government operating expenditure and would be more sustainable and secure.

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“It is a much better use of the Petronas dividend than for general spending,” he said.

He said the dividend to the government will likely be lower than last year which was affected by special issues.

“Profitability is holding up but revenue is lower in the first quarter (Q1) 2023 compared to the fourth quarter (Q4) 2022.

“So it will be a good result if the RM35 billion dividend to the government can be made without affecting overall investment and financial sustainability at Petronas,” he said.

Meanwhile, Bank Muamalat Chief Economist and Social Finance Afzanizam Abdul Rashid said ideally, the government should spend on capacity building such as education, healthcare and infrastructure.

“However the government also needs to weigh in on the short-term needs such as cash transfers programme and subsidies to mitigate the impact of rising living costs, especially among the low-income cohort.

“At RM35 billion, I suppose it is a decent amount considering that Petronas needs to set aside cash for capital expenditure (capex) and at one point Petronas has announced a dividend payment totaling RM54 billion in 2019.

“I think the current dividend is fair and prudent as they need to think about their existing and future projects,” he added.

University of Malaya Faculty of Business and Economics Honorary Professor Mohd Nazari Ismail said the government should start paying back its unpaid debts, which is now more than RM1.5 trillion. That way, we can reduce annual debt services to around RM40 billion yearly.

“I don’t think the government would utilise the dividend rationally as they would probably use it for the short-term political objective of renaming popular.

“So instead of paying back debts, they will spend it on subsidies to make the voters happy,” he said.

Universiti Tun Abdul Razak Graduates School of Business Emeritus Professor Barjoyai Bardai added the government has been plotting the dividend from Petronas as a non-tax revenue, and it is included as a budget as a source of income for the government and then it is used together with the rest of the fund for the government budget.

“So if you imagined there has been over 40 years and multiplied it to RM35 billion it would be over RM1.4 trillion that has been paid to the government and the money's gone.

“We did not see the outcome of the dividend of the Petronas and if we have done what Norway had done with their all funds as they determined to separate the dividend from their all revenue and not use it for the government and they form an all fund foundation.

“They invested in that and kept it to grow and started in 1992 and it is worth 10 trillion today,” he said.

He added it is difficult to comment on how it should be used productively but I would prefer Petronas or the government to delegate the dividend to set up a government fund like Norway.

“It is never too late and if we start this year, in 20 years we may have RM5 trillion in government funds that we can source and help those in needy groups and society.

“It should also be used to create a social protection scheme for the citizens,” he said.