August 21, 2012
Malaysia needs a credible plan to deal with Debt and Federal Budget Deficit
by Lee Wei Lian@http://www.themalaysianinsider.com
Malaysia has yet to present a convincing plan to tackle the twin fiscal threats of its federal budget deficit and federal debt even though strains on its credit profile are increasing said Fitch Ratings in a report yesterday.
Fitch also said that data clearly shows public sector-linked activity has been a key driver of GDP growth for the last four quarters alongside robust private sector activity.
It said that the ratio of federal government debt to GDP reached 51.8 per cent at end-2011 despite strong GDP growth but barring a further deterioration in the global economy, the Malaysian government should be able to meet its 2012 deficit target of 4.7 per cent of GDP.
“Looking beyond this year, however, the Malaysian authorities have yet to outline a credible near-term plan to reduce the fiscal deficit to three per cent of GDP, and the debt/GDP ratio to 50 per cent, by 2015, in line with their official targets,” said Fitch.
The ratings agency noted that Malaysia’s public finances already compare poorly with its similarly rated peers in both the ‘A’ and ‘BBB’ range medians and added that improving the nation’s fiscal position will be challenging without significant reform to address the cost of fuel subsidies, broaden the fiscal revenue base, or reduce dependence on energy-linked revenues.
“Without such reforms, our base case is that the debt/GDP ratio will continue
to rise until 2016,” said Fitch. “The federal debt ceiling of 55 per cent of GDP, which was increased from 45 per cent in July 2009 to accommodate fiscal stimulus, suggests that the room for fiscal slippage may be limited without further alteration to the debt ceiling. If this were to happen, it would apply additional negative pressure on Malaysia’s credit profile.”
It said, however, that Malaysia still possessed several strengths such as a track record of macroeconomic stability, a strong net external credit position, and funding flexibility.
Malaysia reported a surprisingly strong second-quarter economic growth of 5.4 per cent despite weakening exports largely due to the buffer of ongoing construction projects and increased spending attributed to civil servant salary hikes and government cash handouts said economists.
They added that the difference in performance between the domestic and export sectors could point to uneven growth in the months ahead and lead to a two-speed economy
While the Najib administration’s efforts to help tide the country over the rocky global economic environment with a longer term goal of transforming the country in a high income nation by spending more on salary hikes and kick-starting large infrastructure projects has helped boost GDP growth, analysts have noted that its debt has outgrown revenue since 2007.
Figures from the Federal Treasury’s Economic Reports show that the federal government’s domestic debt almost doubled in the space of less than five years — from RM247 billion in 2007 to an estimated RM421 billion in 2011 — far outpacing its revenues which only grew 31 per cent, or from RM140 billion to RM183 billion, during the same period.
While the Najib administration has vowed not to let federal government obligations exceed 55 per cent of the country’s GDP, there is increasing worry that when government-backed loans or “contingent liabilities” are taken into account, the government’s total debt exposure has already risen to about 65 per cent of GDP last year.
Fitch earlier warned that the country is now on par with more heavily indebted ‘A’ range sovereigns, such as crisis-hit Italy, on some measures like debt-to-revenue ratio and a lack of progress on fiscal reforms and may lead to a ratings downgrade which could push up the country’s borrowing costs.
Dato,
This article is best read in conjunction with the one in the steadyaku47 blog written by Nawawi Mohamad entitled “Malaysia’s 6 prime ministers: When did the corruption and racism start?”.
I am quite inclined to think that we need a change of govt to put things right and straight again. Like the case of Penang when the govt coffers were in the red year in and year out. It took PKR 2 – 3 years to have surpluses until it was able to almost pay up the state debts.
I am certain that RAM will give you a different picture.
Now what? Under Mahathir Cabinet members are made to look like Japanese factory managers. Now they look like gooks in suits and red ties instead of black pyjamas. Who is the enemy??
“They added that the difference in performance between the domestic and export sectors could point to uneven growth in the months ahead and lead to a two-speed economy”
Two speed economy?? Malaysia is on speed (crystal meth and shabu) for many years now. The addiction can only get worse. The ‘feel good’ years are far from over.
1. Get a more fiscally responsible Finance Minister & protect the independence of Bank Negara Malaysia
2. Regime change !
Credible plan to deal with debt?
Easy… bring it down to zero AND KEEP IT THERE.
We are fortunate that our country can afford to do it.
Our relatively small country is so blessed with resources that, we ought to have a very large savings fund… and instead of wondering how best to deal with debt, we should be looking for ways on how and where to park that fund for our future generations.
What future generations?!
At the rate were going, Central Africa will look enticing over the next 2 decades.
The buzz word seems to be plumping up the domestic market and service industries. What needs servicing, revolves upon progressively more oppressive bureaucracy. More monopolistic controls, laws and statutes, just to enforce irrelevant, sometimes idiotic compliance – thus making a quick buck for rent seeking pencil pushers. An example would be spurious copy-catting the Aussie ban on cigarette packaging. Now tell me, how does that affect my smoker’s lungs? Or snowballing the mobile communications industry to pay up to a vestigeal, shady hastily set up organization to vet unused/surrendered phone numbers?
Dey, there are bigger fish to fry la. All this does not make a high income society. Technology does, but these morons are so incompetent that they can only come up with statutes to make money. Whither R&D?
The big issues of environmental degradation, regeneration and revival of urban environment, preservation of traditional livelihood for the marginalized, holistic education, efficient and cheap transportation for the masses, healthcare (not run by hospital assistants and midwives of questionable qualifications), proper sanitation, clean potable water and crime prevention are disregarded – or worse, made into contentious political issues. The social safety net remains a wet-dream. The attitude towards preservation and proper maintenance remain slip-shod or non-existent.
Does our third world mentality insists on edifices and white elephants, notwithstanding we can’t afford it? Then again, we have the recurring humongous scams and corporate rape that squeezes out oil (vegetable or otherwise) from stone.
Tell me, is there a future, when the head honcho demurs over doing what is right and instead bows down to whatever political expediencies of the hour? So, let us enjoy the lemang and non-NFCed rendang while it lasts. Toddy? can’t find it within 20kms from my abode.