Sustainability

Improving Malaysia’s Ecological Fiscal Transfers: Key Takeaways from Macaranga Media's Webinar

On 23 April 2024, Samantha Ho (Eco Business), Surin Suksuwan and Teckwyn Lim, moderated by Yao-Hua Law of Macaranga Media, gathered to discuss Malaysia’s Ecological Fiscal Transfer (EFT) policy, a federal initiative aimed at incentivizing state governments to conserve forests and protected areas. The webinar shed light on the program’s challenges, transparency gaps, and potential improvements. Here were the key takeaways:
1. Limited Funds Disbursed, Lack of Transparency

Since its introduction in 2019, the federal government has allocated RM800 million under the EFT scheme. However:

  • Less than 5% of the funds have been disbursed.

  • In some years, the amounts given to state governments were lower than publicly stated.

  • The Ministry of Natural Resources and Environmental Sustainability (NRES) did not disburse funds in certain years, raising questions about oversight.

While some projects—such as Tasik Chini’s conservation and an artificial reef in Kelantan—were highlighted, most states provided little detail on how funds were used. Johor was the most transparent but only shared data from 2021, leaving earlier allocations unaccounted for.

2. Why Does the Federal Government Need States’ Cooperation?

  • States control land, while the federal government has international commitments (e.g., protecting 20% of Malaysia’s land).

  • Without state cooperation, federal conservation goals (such as maintaining 50% forest cover) may fail—especially as states like Sarawak continue converting forests for agriculture.

  • Currently, there is no penalty for states that reduce forest cover, and little compensationfor states like Pahang and Sabah, which already maintain high forest coverage.

3. Ambiguity in Definitions and Monitoring

  • The federal government retracted a list of protected areas from MyBIS, claiming it was a temporary delay—but five and a half years later, clarity is still lacking.

  • Without clear definitions, it’s difficult to determine what qualifies as a protected forest or how much forest cover exists.

  • No strict monitoring ensures funds are used for conservation. Some states reportedly spent EFT money on roads and other non-conservation projects. However, some panellists agreed that for EFTs to work, state governments should have freedom to choose as to what they define as constituting ‘conservation’.

4. Should EFTs Be Tied to Conservation Outcomes?

  • Teckwyn argued that EFTs should increase protected areas and maintain forest cover, not just fund existing state activities.

  • Surin suggested that states failing to protect forests should lose funding, turning EFTs into a performance-based incentive.

  • Samantha emphasized transparency—even if funds aren’t spent on conservation, the public deserves to know how they’re used.

5. Rethinking EFTs: Opportunity Cost, Not Just Conservation Funds

  • Since federal transfers to states are constitutionally mandated, EFTs could be structured as compensation for lost economic opportunities (e.g., logging or mining bans).

  • Surin proposed: “If you have X amount of forests, you get X amount of money.”

  • Others questioned whether framing EFTs as “conservation funds” is effective—perhaps they should be seen as payments for ecosystem services.

Conclusion
Malaysia’s EFT policy has the powerful potential to safeguard Malaysia’s natural heritage as well as being a legitimate tool to back up the Malaysian government’s pledge of maintaining 50% forest cover. Notwithstanding, the general consensus was concern over the lack of transparency at how public funds were being spent.

Part 1 of Macaranga Media’s coverage of EFTs can be found here. Part 2 may be found here.
MyBIS’ list of protected areas may be found here.

Attending the ASEAN Economic Opinion Leaders Conference: Insights for 2025

We recently attended the ASEAN Economic Opinion Leaders Conference: Outlook for 2025, held at MITI, Kuala Lumpur, from 8-9 January, 2025. The event brought together key industry leaders, policymakers, and economists to discuss the region's future under Malaysia's ASEAN Chairmanship.

Across two days, we joined insightful sessions, including:

  1. The Digital Economy and Green Economy - ASEAN’s Future Engines of Growth: Yeoh Keong Hann (YTL Power) emphasized the importance of balancing domestic advantages in renewable energy with equitable distribution across ASEAN. He proposed ideas like connecting regional power grids to facilitate energy trading. Firdaus Hisham (UEM) highlighted the need to harmonize regulations to attract investments and accelerate large-scale green initiatives.

  2. World Bank’s Economic Outlook for ASEAN: Manu Bashkaran (Centennial Asia Advisors) and Aakash Mohpal (World Bank) provided a comprehensive view of post-pandemic economic recovery. They stressed empowering SMEs as critical drivers of innovation and job creation while addressing geopolitical risks, such as shifts in global trade patterns and increasing transport costs.

  3. Reinforcing Regional Economic Integration for a Resilient ASEAN: Satvinder Singh (ASEAN Secretariat) and Nazir Razak (ASEAN-BAC Malaysia) explored innovative solutions like the idea of an ASEAN business entity to facilitate seamless operations across borders. They also discussed revisiting older initiatives, such as customs integration, to strengthen regional supply chains.

These dialogues underscored ASEAN's resilience and potential, with a focus on sustainable growth, innovation, and regional collaboration. The conference set an optimistic tone for Malaysia’s role in leading ASEAN into 2025 and beyond.

Panel Discussion, ‘Reinforcing Regional Economic Integration for a Resilient ASEAN’

With Chee Hau (Ministry of International Trade and Industry)