The government is already taking steps to address the ballooning debt ratio, by cutting back on subsidies and introducing the Goods and Services Tax.
PETALING JAYA: Malaysia’s debt ratio will be below 60% of gross domestic product (GDP) once the government starts initiating major budget- deficit reduction reforms such as the consumption tax to reducing subsidies this year, says a global accountant body.
The Institute of Chartered Accountants in England and Wales (ICAEW) economic adviser Douglas McWilliams said Prime Minister Najib Tun Razak had put in place the necessary policies to tackle the debt dilemma.
“The fast growth is helping taxation revenues and government’s budgetary consolidation, particularly on subsidies but also GST (Goods and Services Tax), which means Malaysia’s debt ratio will be below 60%,” McWilliams told the media after releasing ICAEW’s quarterly economic report in Kuala Lumpur last Friday.
Malaysia’s current national debt ratio stands at 53% to the GDP which has forced the government to adopt drastic measures such as cutting subsidies and introducing the “not-sofriendly” GST in 2015.
In the last four months, Najib tried to contain public expenditure by cutting ballooning subsidies, beginning with fuel and sugar. Power subsidies will go next month. This year’s total subsidies amounted to about RM33 billion.
McWilliams said the narrowing debt ratio augurs well for the economy and even when a reduction in the US Federal Reserves stimulus package happens the ringgit will not be affected.
“Had the debt ratio been getting close to 60%, then there would be much risk of a slide in the ringgit at the time when tapering was to happen. Confidence in the ringgit depends on keeping the debt ratio below 60%,” he added.
According to McWilliams, 2014 would be a “transition year” for the economy as it will undergo structural reforms to fix its fiscal woes.
“It (2014) will be transition year, consolidating government finances, increasing consumption taxes and widening the tax base. It is an important shift, it’s a pro-enterprise and pro-growth shift,” he said.
The professional body forecast Malaysia’s economic growth for 2014 would be 4.2% if China’s economy growth shrinks.
According to ICAEW’s quarterly report, high household and public debt levels will fuel concerns of unsustainable credit growth that would in turn hurt investments and household consumption.
“The implementation of a revamped general sales tax in 2015 would further hamper consumption growth. However, a stronger global economy should mitigate this somewhat. We forecast GDP will rise by 4.1% in 2015,” said the report.
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