KUALA LUMPUR : Malaysia could still go bankrupt by 2019 if the annual growth rate is constantly below 4% while debt increases at 12% a year, and the country continues to spend borrowed money on operational expenditure such as subsidies, warned Datuk Seri Idris Jala, CEO of Performance Management and Delivery Unit (Pemandu) yesterday.
Over the past several years, the government’s budget deficit has persistently stayed above 5% of GDP, taking its toll on government finances as it would need to borrow to cover expenses. As at end of fiscal year 2010, the federal government debt stood at RM407 billion, or 53.1% of GDP, and is fast approaching the government debt ceiling of 55% of GDP.
“If our economy grows in the next 10 years at the rate of less than 4% (annually) and we do not curb our operating expenditure, we would have to increase borrowings by 12% (annually). Then, we will arrive at the position where our debt level will be 100% of GDP in 2019,” he said.
“Of course, we in the government will not allow that to happen. We will do everything in our power to stop that from happening,” he added.
According to Jala, the government is committed to the plan to rationalise subsidies. However, it will only be done gradually, in small amounts over a spread-out period of between five and seven years, he said, so that the removal (of subsidies) will not introduce shocks into the system.
“The price of RON 97 has been brought up to market price, and we have increased the price of RON 95 three times since the rationalisation began,” he cited.
Jala said the subsidy rationalisation programme would have to take into account the impact on the lower-income group so that the increase in cost of living will not adversely affect the bottom 40%. Citing the rise in electricity tariffs as an example, the hike did not affect 70% of household consumers who consume below 300kWh of electricity per month.
Other than cutting down on the subsidy bill, Jala also said the government should not delay implementing the goods and services tax (GST). This is because out of the 28 million Malaysians, only one million are currently paying taxes.
He said that by introducing the GST at 5%, the government’s revenue would increase by RM6 billion. If the rate is fixed at 7%, which is on par with Singapore, Jala estimated that the revenue collected would increase by RM13 billion.
This article appeared in The Edge Financial Daily, November 2, 2011.
Over the past several years, the government’s budget deficit has persistently stayed above 5% of GDP, taking its toll on government finances as it would need to borrow to cover expenses. As at end of fiscal year 2010, the federal government debt stood at RM407 billion, or 53.1% of GDP, and is fast approaching the government debt ceiling of 55% of GDP.
“If our economy grows in the next 10 years at the rate of less than 4% (annually) and we do not curb our operating expenditure, we would have to increase borrowings by 12% (annually). Then, we will arrive at the position where our debt level will be 100% of GDP in 2019,” he said.
“Of course, we in the government will not allow that to happen. We will do everything in our power to stop that from happening,” he added.
According to Jala, the government is committed to the plan to rationalise subsidies. However, it will only be done gradually, in small amounts over a spread-out period of between five and seven years, he said, so that the removal (of subsidies) will not introduce shocks into the system.
“The price of RON 97 has been brought up to market price, and we have increased the price of RON 95 three times since the rationalisation began,” he cited.
Jala said the subsidy rationalisation programme would have to take into account the impact on the lower-income group so that the increase in cost of living will not adversely affect the bottom 40%. Citing the rise in electricity tariffs as an example, the hike did not affect 70% of household consumers who consume below 300kWh of electricity per month.
Other than cutting down on the subsidy bill, Jala also said the government should not delay implementing the goods and services tax (GST). This is because out of the 28 million Malaysians, only one million are currently paying taxes.
He said that by introducing the GST at 5%, the government’s revenue would increase by RM6 billion. If the rate is fixed at 7%, which is on par with Singapore, Jala estimated that the revenue collected would increase by RM13 billion.
This article appeared in The Edge Financial Daily, November 2, 2011.
