Prime Minister Datuk Seri Najib Razak must explain how he plans to cut state subsidies, broaden its tax base and manage spending ‘prudently’ to avoid Malaysia’s credit rating from being cut by Fitch Ratings. Fitch Ratings had cut Malaysia’s credit outlook from stable to negative in July, citing rising debt levels and a lack of budgetary reform.
At 53.3%, Malaysia’s debt-to-gross domestic product(GDP) ratio is the highest among 12 emerging Asian markets after Sri Lanka. With government guarantees, the government’s credit exposure was 70.2% of GDP as of the end of the second quarter, up from 66.6% a year earlier. Malaysia household debt to GDP ratio is even higher at 83% as at 2013, up from 66.7% in 2004, the second highest in Asia.
Is Najib talking about further increase in petrol, sugar and food prices when he talked of cutting state subsidies? Is Najib going to implement open competitive tenders to cut down crony capitalism when he talked of managing spending prudently?
Promises of managing spending prudently is meaningless when no action or punishment is meted out against those responsible for the excesses, wastage and financial wrongdoings amounting to RM6.5 billion that were highlighted in the 2012 Auditor-General Report with a negative impact on the economy.
When Najib talks about broadening the country’s tax base, is he talking about imposing Goods & Services Tax of 7% that Minister in the Prime Minister Department Datuk Seri Idris Jala announced would bring in RM27 billion a year? This would cost each of the 28 million Malaysians an additional cost burden of an average of RM1,000 a year.
Najib has a responsibility to clarify what he meant, especially when the BN Federal government has failed to fight corruption until Washington Post printed an article of Malaysia as the world champion of corruption. Even renowned financial analyst Jesse Colombo wrote in the Forbes online magazine that Malaysia economic bubble will burst due to Malaysia’s high government and household debt.
Interestingly, Colombo said that plans to build the tallest building in Southeast Asia, the 118-story and RM5 billion Warisan Merdeka Tower, is a major Skyscraper Index red flag. The Skyscraper Index red flag refers to a Dresdner Kleinwort report in 2009 which showed a correlation between the construction of the world’s tallest buildings and the impending end of business cycles.