July 25, 2012
Malaysia’s Debt at 53.8 percent of GDP still manageable, says PERMANDU’s “Chief Economist”
Malaysia’s debt is still manageable as it is below 55 percent to the Gross Domestic Product (GDP) ratio, said Minister in the Prime Minister’s Department Idris Jala.
He said the 53.8 percent of national debt for last year is within the range as the government continues its efforts to bring down the fiscal deficit level.
“With the implementation of the Economic Transformation Programme, we are on the right trajectory and continue to reduce the deficit level every year. For 2012, we aim to narrow further the fiscal deficit to 4.7 percent from 5.0 percent of last year’s GDP,” he told the media on the sidelines of the GTP Roadmap 2.0 Open Day in Kuala Lumpur today.
Citing the Mass Rapid Transit project, Idris said though the government had to raise funds for the project, it still managed to keep the debt level below 55 percent.
“We borrow for investments (aiming) to grow our GDP and economy. The debt level will directly reduce. Unlike Greece, they are borrowing a lot of money but the economy is shrinking,” he added.
Idris, who is also the Chief Executive Officer of the Performance Management and Delivery Unit (Pemandu), said Malaysia’s GDP at 4.7 percent in the first quarter was still growing, whereas Singapore’s only grew at 1.4 percent, due to the slowdown in the global economy.
“This is good… with more investments coming in and positive indicators, going forward,” he added.
The GTP Roadmap 2.0 Open Day at the Kuala Lumpur Convention Centre aims to gather feedback from the public and provide a basis for review for Pemandu.
The GTP Roadmap 2.0 was formulated after Pemandu conducted a series of labs, held over six weeks in April and May, to identify key issues and new areas of growth opportunities, which would work on within the National Key Results Areas.
- Bernama (07-24-12)
Keep singing and strumming your guitar, and delude yourself and others who are taken up by your economic theorizing. I wonder whether Bank Negara Malaysia Governor, Tan Sri Zeti shares your view. At the rate of government spending (financed by savings and the banks), Malaysia’s creditworthiness will soon come under review.
CLF, what do you think? We are dangerously close to the point where markets will begin to take notice and the rating agencies will start reassessing our credit standing. I agree with Jala that we are not Greece, thanks to our high savings rate, but fiscal prudence is always the best policy. –Din Merican
If one were to look at the trajectory of government revenue and expenditure over the last couple of years, one would wonder what the fuss is about. There’s been very little movement in the debt to GDP ratio – much of the increase we’ve seen was purely down to the sharp drop in revenue in 2009-2010, not a systemic indulgence in overspending. As long as the rate of increase in debt (i.e. the deficit) is below the rate of increase in nominal GDP, we should be fine.
The more important question is really, from a macro-stabilisation perspective, whether the government should be dissaving given low unemployment and high capacity utilisation. But that’s a separate issue from debt sustainability.
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Point well taken. Hishamh. The danger is what happens when the rate of increase in nominal GDP moderates or declines. We need to be fiscally prudent and conservative. I learned that from Tun Ismail Mohamed Ali when I was at Bank Negara. I accept a certain level of gearing is okay. 53.8 debt to GDP ratio makes me uncomfortable.–Din Merican
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Also Dato’ Din – our high savings rate is a bit of a mirage, at least from a household perspective. Almost all of it is undistributed corporate profits, not household savings.
When Zimbabwe”s economy went to a tail spin the debt to GDP ratio was 53%. In the case of of the developed economies it was at 65% and nothing happened until now when it became public knowledge that it was reaching 75-80%. The trigger point depends on the liquidity of the economy and above all perception. A perception that you can pay your bill and meet debt obligation. Free availability of foreign excahnge on demand also plays a big role in the perception. When it comes to this issue you can restrict inflow of foreign funds but you cannot restrict outflow of foreign excange. Once you do that you create a perception that you are shot of foreign exchange.
Yes Malaysia is flushed with Foreign Exchange but once exporters decide to keep their profits abroad and only bring in foreign exchange they have earned to meet operating cost at home you are in trouble. Not to mention under invoicing of of exports and over invoicing of imports.
I agree that fiscal prudence is the best policy. In this regard PEMANDU may be better off if they have training programmes for our Procurement Departments and its officers to be educated on the prices of goods and services in this country and overseas. An understanding of that and its deligent application alone may prevent us from becoming another Zimbabwe or Greece.
I think going forward say the next 18 months it’s the external risks that is most worrying. Europe is facing massive debt problem which cannot be solve easily and some sovereign will default. So is USA maybe going forward in two to three years. China? Where are they going to export all that they produce and not to mention their property market already in a big bubble and inflation is trending upward faster than the rise in wages for the majority of the workers. We must be prudence when it comes to government spending (inherently inefficient) and generally I will stick to this: A GOVERNMENT CANNOT CONTINUE TO SPEND MORE THAN WHAT YOU CAN TAX. You will be Greece in no time. It’s a matter of when and not if. Mathematics don’t lie.
I agree with Thomas C. We may not be Greece nor Zimbabwe, but fiscally this administration is irresponsible. Their insular thinking is beyond redemption.
Since my sense in economics is close to zero, my take is that the national debt is worrying – whatever the stated level. The authorities have deemed it fit to dip their paws into domestic savings to run ETP programs – which are as transparent as their thick faces. Petronas, the cash cow, is already at the end of their tether. Cost overruns, corporate corruption and cronyism is much worse than Dopey’s or even Octo’s time. We cannot afford unsustainable in-your-face “Brands”.
While our exports remain strong because of regional trade, it will be a matter of time if the European FUBAR does not settle soon. The massive infrastructure projects in Johor are a sight to behold. Distractions of things like the MRT, Syabas etc pale in comparison with the huge sums that are being poured into dubious projects that are facing serious difficulty in attracting investments. In main, because of the waffling policies, kickbacks and ridiculous bureaucracy. The quality of the investments are also wanting because of the lack of technical ability in our workforce. It loops back on our inane education policy.
For example, FGV is gonna suffer setbacks soon, cuz India has just announced that the import tax for CPO will double with immediate effect. And Indonesia has a much better export tax structure, while we’re still in the process of addressing. Too late, and too little.
We should all be very worried by the
fiscal irresponsibility of the current finance minister.
I agree that we are not Zimbabwe or Greece but If this rate of off- budget spending goes on then, if and when a new government comes into power, it will have no alternative but to adopt taxation policies that will be regarded by the people as predatory in nature.
Yes, Dr Phua, Thumb Logic.
The Opposition is overly optimistic and tries too hard to optimize populism. It is not easy to nip the embedded rampant corruption with decrees and curses. They can dismantle many of the wasteful and corrupt practices, but even the massive savings will take time to roll back the damage already done.
Take the example of a hemorrhaging person ‘in extremis’, and we are successful in stopping the bleeding. He will still need massive amounts of transfusions and will remain terminally ill for a long time.
What i feel is that while we tackle/plug the leakages, we must be prepared to heal the nation with painful injections. No pain, no gain. How to do it? I leave to people like Dato and Hishamh. Without the damned politics! Right now we are dying a death of a million cuts..
It is just a matter of time. No one can survive by living beyond his means on a sustained basis. Tough days ahead for our economy.–Din Merican
I may not be anywhere near anyone’s grasps of economics but I do know that the price of goods keep increasing, what I see at the supermarkets are imported stuff, even vegetables are flown from China. How can we afford this? I also cannot understand the bottomless pit of BN. Where is the government getting all the money to pay the taxi drivers, increase salary of government servants, give bonus, open 1 malaysia shops, clinics and many more? All I see is spending. Iceland went bankrupt, but then realised that one can’t live beyond ones means, so they kicked out their old government and strived to go back to their stable (albeit some would consider rural existence) debt free existence. As long as you owe people–it’s never good in my books, especially when you can’t pay it back.
At the rate we are going Dato Din, Pakatan Rakyat will lose popularity within the first few months if they ever make it to Putrajaya. Why do I say so? It is because they will be caught short on funds when they takeover the government and their emergency taxation initiatives [to raise money] will cause a lot of anger with the people to whom they had promised to reduce petrol pump price, reduce car prices, abolish PTPTN loan repayments etc
If I were Pakatan I would start warning the people – we could do all those we had promised ONLY if there is money left in the coffer. At the rate Ah Jib Gor is spending there ain’t gonna be much left when Ah Wah Gor takes over….
Pay attention to what Isa has been saying all along folks… there is no such thing as a “good” debt. Whatever the percentages say, debt only means that one is spending more than one earns. This ought to be knocked into the heads of all those snazzy economists.
Run up a debt for a VERY short time and you can get away with it. But let it prolong… and trouble is not far.
Westerners have just woken up to this simple fact… trouble is, it is already too late for most of them. The fact that they are bankrupt matters little as they have been enjoying high standards of living… but they have destroyed the hopes of at least one generation to come, if not more.
So let us take a lesson and stop this sustainable debt stuff. Live simply and live within our means.
Am I now eligible for the next Nobel Prize in Economics?